FOCUSED
ON GROWTH
FOCUSED
2011 AnnuAl RepoRt
STRENGTH
FINANCIAL
PRODUCTION
GROWING
RESERVES
GROWING
FOCUSED ON
CORPORATE INFORmATION
DIRECTORS
CORPORATE HEAD OFFICE
REGISTRAR AND TRANSFER AGENT
Alan Hill 5
Executive Chairman and CEO
Richard young
President and CFO
Christopher Lattanzi 3,5
Oliver Lennox-king 1,2,4,5
Alan Thomas 1,2,3,4
Frank Wheatley 1,2,3,4
1. Audit Committee
2. Corporate Governance and
Nominating Committee
3. Compensation Committee
4. Finance Committee
5. Technical, Safety, Environmental
and Social Responsibility Committee
SENIOR mANAGEmENT
Alan Hill
Executive Chairman and CEO
Richard young
President and CFO
yani Roditis
Vice President, Operations
kathy Sipos
Vice President, Investor & Stakeholder Relations
David Savarie
Vice President, General Counsel & Corporate Secretary
macoumba Diop
Teranga Gold Corporation
Suite 2600-121 King Street West
Toronto, Ontario, Canada M5H 3T9
Tel: + 1-416-594-0000
Fax: + 1-416-594-0088
Email: investor@terangagold.com
www.terangagold.com
Contact:
kathy Sipos
Vice President, Investor & Stakeholder Relations
Direct: + 1-416-594-9547
Email: ksipos@terangagold.com
SENEGAL OFFICE
2K Plaza
Allees Meridient President
Almadies BP38385
Dakar Yoff Senegal
Tel: + 221-338-693-181
Fax: + 221-338-603-683
AUDITOR
Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario, Canada
General Manager & Government
SOLICITORS
Relations Manager, SGO
mark English
Operations Manager, SGO
martin Pawlitschek
Regional Exploration Manager, SGO
bruce Van brunt
Business Development Manager, SGO
Stikeman Elliott LLP
Toronto, Ontario, Canada
Canada: Computershare Trust Company
of Canada
Tel: + 1-800-564-6253
Australia: Computershare
Investor Services Pty Ltd
Tel: + 1-300-850-505 (investors
within Australia)
Tel: + 61-3-9415-4000 (investors)
SHARE CAPITAL
Common Shares
Issued and Outstanding 245,618,000
(as at December 31, 2011)
STOCk ExCHANGE LISTINGS
Toronto Stock Exchange
Australian Stock Exchange
Symbol: TGZ
ANNUAL mEETING
The Annual General Meeting of
Shareholders will be held on
Thursday, March 29, 2012 at 9:30 a.m.,
Offices of Stikeman Elliott LLP
Main Board Room, 51st Floor,
199 Bay Street, Toronto, ON
This report is printed on Cougar Opaque with 10% post-
consumer recycled fibre using SFI-Fibre Sourcing Certifica-
tion. It is manufactured by Domtar to exacting environ-
mental standards with support by the Rainforest Alliance,
WWF-Canada as well as FSC certification.
Inks used for the production of this report are printed using
Low VOC (low volatile organic compounds).
TERANGA GOLD CORPORATION
IS A CANADIAN-bASED
GOLD COmPANy WHICH WAS
CREATED TO ACqUIRE THE
SAbODALA GOLD mINE AND A
LARGE REGIONAL ExPLORATION
LAND PACkAGE, LOCATED IN
SENEGAL, WEST AFRICA.
contents
1/
messAge fRom the executive chAiRmAn And pResident
4/
focused on gRowth / why invest
5/ sAbodAlA gold
6/
opeRAtions
7/
mine license exploRAtion
8/
RegionAl exploRAtion
.
p
r
o
C
s
c
h
p
a
r
i
G
s
u
d
o
x
E
:
g
n
i
t
n
i
r
P
a
c
.
e
c
a
p
s
r
a
e
c
l
,
e
c
a
p
S
r
a
e
C
l
:
n
g
i
s
e
D
n
o
i
t
a
r
o
p
r
o
C
d
o
G
a
g
n
a
r
e
T
l
2
1
0
2
t
h
g
i
r
y
p
o
C
©
1/
wAtch AlAn And RichARd
discuss the detAils
of the sAbodAlA mine At
TErangagOlD.COm
mESSagE FrOm
ThE ExECUTiVE Chairman
anD prESiDEnT
AlAn hill
executive chAiRmAn And ceo
RichARd young
pResident And cfo
Dear Fellow Shareholders,
in acquiring the Sabodala gold mine just over a year
ago, we saw tremendous opportunity to create value for
our shareholders and stakeholders from the significant
potential of having the only large-scale gold mining
operation and the largest exploration land package in
an emerging gold district. after our first full year, we
are even more confident that the operation, together
with our prospective land package, provides the basis
for growth in reserves, production, earnings and cash
flow as new discoveries are made and processed
through our existing mill.
2011 AnnuAl RepoRt 2/
teranga gold corporation
OUr miSSiOn
Our mission is to share the benefits
with all our stakeholders through
responsible mining. we strive to act
as a responsible corporate citizen
by building projects together with
the communities and by being
committed to using best available
technologies as we carry out our
actions. we aim to achieve benefits
for all parties involved, and to
contribute to the sustainability
and improved livelihoods for the
communities in which we operate.
OUr ViSiOn
Our vision is to become a
preeminent gold producer in
west africa while setting the
benchmark for responsible mining.
• phaSE 1: bECOmE a miD-TiEr gOlD
prODUCEr in Senegal with 250,000
to 350,000 ounces of annual
gold production with existing
infrastructure
• phaSE 2: inCrEaSE annUal gOlD
prODUCTiOn to 400,000 to 500,000
ounces
With the mine being commissioned
in early 2009, the first in Senegal, it
takes time to set up systems, line up
a supply chain, hire and train our work
force as well as contractors to supply
goods and services to the mine. These
activities are taken for granted in estab-
lished mining regions but require time
in new mining regions like Senegal. As
a result, our first objective for Sabodala
in 2011 was to continue to build on
the good work our predecessors did in
building the mine.
All of our actions in 2011 underpin
our mission and vision, as we focus on
Corporate Social Responsibility and
growth, growth in reserves, growth in
production and building a stronger
balance sheet in order to facilitate
our actions.
whaT wE DiD in 2011:
• produced 131,461 oz gold at
$900 per oz
• ramped up our exploration
program
• Commenced doubling mill capacity
• lowered operating risk
• Delivered against our hedge book
and
• implemented a fresh focus on
Corporate Social responsibilty
We made solid strides building on
the good work of our predecessors to
optimize and reduce the operating risk
of the Sabodala gold mine. Despite
the fact that we were fortunate to have
inherited a first class mill, produc-
tion was lower than we anticipated as
we were delayed in reaching higher
grade material which was expected in
the December quarter. As a result we
produced 131,461 ounces versus the
original budget of 140,000 ounces but
in line with revised guidance.
These higher grade ounces were stock-
piled at the end of 2011 and will be
processed in the first quarter of this
year. The shortfall was caused by a
lack of broken rock which resulted from
insufficient drilling capacity. The drill
fleet was old and as such, had lower
availability than planned. We recognized
this issue earlier in the year, but the
new drills delivered to site at year end
were too late to help meet our 2011
production target. Production was also
negatively impacted by lower than
planned loading availability in the Dec-
ember quarter. We have addressed this
issue by securing a larger inventory of
capital spares for both our hauling and
loading mobile equipment. As we move
forward, the mine will also benefit from
the initiatives we took in 2011 such as
the addition of a second ramp in the
pit, better rainy season mine planning,
improved blasting and maintenance
agreements and new incentive programs
to help attract and retain the best
people. We understand that we are a
single asset company and therefore we
must do everything within our control
to meet our targets. The steps taken in
2011 should ensure that we achieve this
going forward.
Cash costs were also higher than antici-
pated as they were negatively impacted
by higher fuel prices, labour, mainte-
nance and royalty costs. Total cash
costs for the year were $900 per ounce,
which included $120 per ounce for
stripping costs associated with the min-
ing required in preparation for the mill
expansion which we do not defer. We
are largely a fixed cost operation and
therefore, as we increase production in
2012 through the expanded mill, costs
are expected to decline significantly.
Our actions in 2011 will begin to pay
off in 2012 as we expect to see a
~65 percent increase in production to
210,000-225,000 ounces of gold and
a reduction in cash costs which are
expected to decline to between $600–
$650 per ounce. Cash costs of sales
are now being calculated after adjusting
for inventory movement, in line with
the Company’s accounting policies and
reported cost of sales in the Financial
Statements and in line with industry
standards.
Exploration on the Mine License started
slowly in early 2011 but over the final
quarter of the year we encountered
some of the best drill results to date on
the property. As a result, we increased
our guidance on expanding our gold
inventory to 2.5 to 3.5M ounces on the
Mine License within the next 12 to 18
months, which would double our mine
life at a production rate of 200,000
ounces per annum. The additional
ounces are expected to result from
TOgEThEr wE will grOw ThiS COmpany by FOCUSing
On whaT iS wiThin OUr COnTrOl in OrDEr TO DEliVEr
On OUr prOmiSES. in DOing SO, wE bEliEVE ThaT OUr
EFFOrTS will DirECTly TranSlaTE inTO maximizing
bEnEFiTS FOr all OUr STakEhOlDErS.
the success of deepening the Sabodala
pit to the north along the Main Flat
Extension, extension of the Masato pit
onto our property from a neighbour-
ing property, conversion of Niakafiri
resources to reserves as well as adding
reserves below these three large open-
pitable deposits.
Beyond our Mine License, we are very
enthusiastic about the potential on
our Regional Land Package though we
hoped that we would have had early
success. While we had very encourag-
ing results in 2011 on our regional
targets, we did not have a “discovery
hole” of any significance. As we further
refine the key target areas and continue
with the systematic program underway
on many targets yet to be drilled,
we expect to have success in 2012
and beyond.
We are also working through the hedge
book which we inherited, originally put
in place as a requirement for project
financing. At year end the hedge posi-
tion stood at 174,500 ounces. If we
deliver according to the schedule, the
position will be eliminated in August
2013. However, we can accelerate or
defer deliveries at our discretion, which
we will manage based on maintaining
an adequate minimum cash balance.
Due to the shortfall in production in the
December quarter, our cash balance
declined more than we had planned so
we have elected to defer first quarter
deliveries until the second half of 2012
and sell all of our gold production at the
higher spot gold prices to build up our
cash balance, which was $26.5 million
(including restricted cash) at the end
of January 2012. We are focused on
eliminating the position as quickly and
prudently as possible.
whaT wE plan TO DO in 2012:
• produce 210,000–225,000 oz of
gold at $600–$650 per oz
• increase gold inventory on the
mine license alone towards our
goal of 2.5–3.5 million ounces
• Continue the extensive and system-
atic exploration program underway
on the regional land package
• acquire additional exploration
licenses, by entering into joint
ventures and potential strategic
acquisitions of companies or
assets in Senegal
• Complete the mill expansion to
double mill capacity
• Develop a regional Development
Strategy in collaboration with the
communities and key stakeholders
• reduce the hedge book
We believe we have the right team, a
core team that has worked together for
20 years, with extensive experience
exploring, developing and operat-
ing mines, augmented by people who
are driven by the same core values.
Together we will grow this Company by
focusing on what is within our control
in order to deliver on our promises. In
doing so, we believe that our efforts
will directly translate into maximizing
benefits for all our stakeholders.
As shareholders, we recognize that 2011
was a frustrating year in the markets,
in particular at a time when the gold
price set new records reaching $1,920
per ounce. The appeal for gold as an
investment grew significantly, reflecting
persistent concerns about the global
economy, geopolitical uncertainties and
the outlook for global currencies. Yet
this enthusiasm for physical gold did
not translate into record-breaking share
prices, but rather we saw an overall
decline in share prices for the industry.
2011 AnnuAl RepoRt 3/
Our share price declined by 29 percent
for the year compared to our peer group
which declined by 27 percent. Macro-
economic indicators remain strong for
gold, with the necessity to stimulate
economic growth and address high un-
employment, sovereign debt concerns,
EU bailouts, geopolitical concerns with
civil unrest throughout the Middle East,
all creating an increased environment
of uncertainty and unpredictability. All
of these factors combined, reinforce our
positive outlook for gold prices going
forward. We believe that while gold
equities have not kept pace with the
physical demand for gold, if we can
grow our company as we know we can,
our share price should follow.
We are very excited about the year
ahead, with the mill expansion complete
we expect to see a ~65 percent increase
in production with a significant reduction
in our cast costs. This, in combination
with the elimination of our hedge position
allows for significant margin expansion
which goes straight to our bottom line,
increasing earnings, cash flow and free
cash flow. As we do not control the
equity markets, it is our responsibility
to focus on all factors that are within
our control and most importantly deliver
on our promises.
In conclusion, we would like to thank
our shareholders who have supported us
and we would like to recognize all of our
employees, contractors and suppliers
who have worked hard, making great
strides towards building the foundation
upon which we can grow this Company.
We have a terrific team that is dedicated
to our vision and together we look forward
to making it a reality.
alan r. hill
Executive Chairman and CEO
richard S. young
President and CFO
4/
teranga gold corporation
FoCUseD on
GrowinG reserves
GrowinG ProDUCTion
FinAnCiAL sTrenGTH
1.66M oz currently to…
131,461 oz currently to…
/ Objective: 10–15+ year mine life
/ Leveraging off our existing mill
Building a stronger
balance sheet to self-fund
exploration…
/ Growth through exploration –
extensive exploration program
on 1,500km2 Regional Land
Package of virtually unexplored
prolific land
/ Growth through J.V.’s and
acquisitions of assets or
companies in Senegal
/ Doubling mill capacity – could
increase further
/ Eliminating hedge book – quickly
but prudently
/ Increasing production and
lowering costs
/ All exploration targets in truck-
ing distance of existing mill
/ Margin expansion (eliminate
hedge and lower costs)
/ Significant free cash flow
/ Able to self-fund exploration
strategy
/ Manageable capex requirements
wHY invesT
>1,500km2
Operating
Mine/Mill
Large Exploration
Land Package
Building a Stronger
Balance Sheet
Proven performance
Only operating mill in
the country
>1,500km2 virtually
unexplored land
surrounding operating mill
An emerging world-class
gold district
Increasing cash flow by
increasing production and
lowering costs
Able to self-fund
exploration
and development
Experienced
Management
Team
Proven track record
Dedicated to mining
responsibly and sharing
the benefits
2011 AnnuAl RepoRt 5/
Saint-Louis
MAURITANIA
Louga
Matam
Dakar
Thiès
Diourbel
Fatick
Kaolack
SENEGAL
MALI
SABODALA PROJECT
THE GAMBIA
Tambacounda
Ziguinchor
Kolda
GUINEA-BISSAU
GUINEA
SabODala gOlD
FirST gOlD pOUr in marCh 2009
/ Approximately $500M invested to date
mill ExpanSiOn FrOm 2m Tpa TO ~4m Tpa
/ Expected to be completed early 2012
/ 131,461 oz Au production 2011 expanding to >200,000 oz Au
/ Increasing production and lowering costs
wEll DEVElOpED inFraSTrUCTUrE
/ Located 650km east of the capital Dakar and ~100km north of
the town of Kedougou – paved road within 56km of mine site
/ 36 MW heavy fuel oil power plant located on site
Teranga has the only
gold mine and the largest
land package in Senegal.
6/
teRAngA gold coRpoRAtion
OpEraTiOnS
The Sabodala gold project is the only large-scale
gold mine to come into operation in Senegal.
This open pit mining operation has mineral
reserves of 1.66 million ounces of gold and
measured and indicated resources of 2.14
million ounces of gold. The region is emerging
as a significant new gold district along the
birimian greenstone belt where the Company
holds a >1,500km2 land package.
The Company can leverage off of the existing
centrally located mill as additional ounces
are discovered.
2012 FOrECaST
gold production: 210,000–225,000 oz at $600–$650/oz
Exploration budget: $40m
700
600
500
400
300
200
100
0RL
Ayoub’s Open Pit
Target Area
Main Flat Extension
Open Pit Target Area
Lower Flat Zone
Current Pit Bottom
Ultimate Pit Bottom
Measured and Indicated
Resource
Inferred
Resource
O
100
200
300
400
500
600
700m
21250
21000
20750
20500
20250
SabODala minE liCEnSE
prOSpECTS
1/
niAkAfiRi & niAkAfiRi
west extensions
2/ soukhoto extension
3/ sAmbAyA hill
4/ mAin flAt stRuctuRe
extension
5/ sAbodAlA stRuctuRAl
tRend
6/ mAsAto extension
7/ sutubA
8/ dinkokhono
9/ sAbodAlA gRAnite
contAct
10/ fAlombou noRth
Current Pit Bottom
Ultimate Pit Bottom
Measured and Indicated
Resource
Inferred
Resource
O
100
200
300
400
500
600
700m
Ayoub’s Open Pit
Target Area
Main Flat Extension
Open Pit Target Area
Lower Flat Zone
700
600
500
400
300
200
100
0RL
21250
21000
20750
20500
20250
minE liCEnSE
ExplOraTiOn
SaBOdaLa MiLL
2011 AnnuAl RepoRt 7/
9
5
10
4
7
2
1
3
8
6
• 2011: $14M exploration program on the 33km² Sabodala
Mine License; 2012: Budgeting $20M
• Significant potential exists on the 33km² Mine License with
10 targets identified to date for follow-up
• Management expects to expand gold inventory from 1.5M oz
gold to 2.5–3.5M oz gold over the next 12 to 18 months
increasing the mine life to ~10 to 15 years at a run rate of
about 200,000 oz of gold produced annually
• The larger inventory base is expected to result from the success
of deepening the Sabodala pit to the north along the Main
Flat Extension/Lower Flat Zone, extension of the Masato deposit
onto the Mine License, conversion of Niakafiri resources to
reserves as well as adding reserves below the three areas
8/
teranga gold corporation
N
35Km from mill
reGionAL
exPLorATion
Massakounda
Permit
MALI
Heremakono
Permit
SENEGAL
Bransan Permit
Sabodala North West
Permit
Sounkounkou
Permit
Bransan South
Permit
SABODALA MILL
Sabodala West
Permit
Makana Permit
exPLorATion oPPorTUniTies
RESOURCE
proSpectS and targetS
Sabodala mill
maJor gold depoSitS
mining licenSe
exploration permit
Saiansoutou Permit
Dembala Berola
Permit
Garaboureya North
Permit
• 2011: $32M program on the 1,500km² Regional
exPLorATion ProGrAM (CALenDAr 2012)
Land Package; 2012: Budgeting $20M
• Significant prospective potential for satellite
high-grade deposits, as well as the potential for
world-class (+5 million ounces) discoveries similar
to those found on the same gold belt in Mali,
approximately 90km from the Sabodala mine
• Management pursuing an extensive multi-year
exploration program designed to test a number of
targets that have already been identified, currently
more than 40 targets, as requiring additional
analysis, as well as identify new targets for testing
• All targets in trucking distance of the existing mill
1. Mine License Exploration:
$20M
(77,000m)
2. Regional Exploration:
$20M
(90,000m)
ToTAL
$40M
(167,000m)
(+140,000m rAB)
CORPORATE INFORmATION
DIRECTORS
CORPORATE HEAD OFFICE
REGISTRAR AND TRANSFER AGENT
Alan Hill 5
Executive Chairman and CEO
Richard young
President and CFO
Christopher Lattanzi 3,5
Oliver Lennox-king 1,2,4,5
Alan Thomas 1,2,3,4
Frank Wheatley 1,2,3,4
1. Audit Committee
2. Corporate Governance and
Nominating Committee
3. Compensation Committee
4. Finance Committee
5. Technical, Safety, Environmental
and Social Responsibility Committee
SENIOR mANAGEmENT
Alan Hill
Executive Chairman and CEO
Richard young
President and CFO
yani Roditis
Vice President, Operations
kathy Sipos
Vice President, Investor & Stakeholder Relations
David Savarie
Vice President, General Counsel & Corporate Secretary
macoumba Diop
Teranga Gold Corporation
Suite 2600-121 King Street West
Toronto, Ontario, Canada M5H 3T9
Tel: + 1-416-594-0000
Fax: + 1-416-594-0088
Email: investor@terangagold.com
www.terangagold.com
Contact:
kathy Sipos
Vice President, Investor & Stakeholder Relations
Direct: + 1-416-594-9547
Email: ksipos@terangagold.com
SENEGAL OFFICE
2K Plaza
Allees Meridient President
Almadies BP38385
Dakar Yoff Senegal
Tel: + 221-338-693-181
Fax: + 221-338-603-683
AUDITOR
Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario, Canada
General Manager & Government
SOLICITORS
Relations Manager, SGO
mark English
Operations Manager, SGO
martin Pawlitschek
Regional Exploration Manager, SGO
bruce Van brunt
Business Development Manager, SGO
Stikeman Elliott LLP
Toronto, Ontario, Canada
Canada: Computershare Trust Company
of Canada
Tel: + 1-800-564-6253
Australia: Computershare
Investor Services Pty Ltd
Tel: + 1-300-850-505 (investors
within Australia)
Tel: + 61-3-9415-4000 (investors)
SHARE CAPITAL
Common Shares
Issued and Outstanding 245,618,000
(as at December 31, 2011)
STOCk ExCHANGE LISTINGS
Toronto Stock Exchange
Australian Stock Exchange
Symbol: TGZ
ANNUAL mEETING
The Annual General Meeting of
Shareholders will be held on
Thursday, March 29, 2012 at 9:30 a.m.,
Offices of Stikeman Elliott LLP
Main Board Room, 51st Floor,
199 Bay Street, Toronto, ON
This report is printed on Cougar Opaque with 10% post-
consumer recycled fibre using SFI-Fibre Sourcing Certifica-
tion. It is manufactured by Domtar to exacting environ-
mental standards with support by the Rainforest Alliance,
WWF-Canada as well as FSC certification.
Inks used for the production of this report are printed using
Low VOC (low volatile organic compounds).
TERANGA GOLD CORPORATION
IS A CANADIAN-bASED
GOLD COmPANy WHICH WAS
CREATED TO ACqUIRE THE
SAbODALA GOLD mINE AND A
LARGE REGIONAL ExPLORATION
LAND PACkAGE, LOCATED IN
SENEGAL, WEST AFRICA.
contents
1/
messAge fRom the executive chAiRmAn And pResident
4/
focused on gRowth / why invest
5/ sAbodAlA gold
6/
opeRAtions
7/
mine license exploRAtion
8/
RegionAl exploRAtion
.
p
r
o
C
s
c
h
p
a
r
i
G
s
u
d
o
x
E
:
g
n
i
t
n
i
r
P
a
c
.
e
c
a
p
s
r
a
e
c
l
,
e
c
a
p
S
r
a
e
C
l
:
n
g
i
s
e
D
n
o
i
t
a
r
o
p
r
o
C
d
o
G
a
g
n
a
r
e
T
l
2
1
0
2
t
h
g
i
r
y
p
o
C
©
FOCUSED
ON GROWTH
FOCUSED
2011 AnnuAl RepoRt
STRENGTH
FINANCIAL
PRODUCTION
GROWING
RESERVES
GROWING
FOCUSED ON
2011 AnnuAl RepoRt
Financial
statements
1/
manaGement’s discUssiOn
and analYsis
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 fifteen months ended December 31, 2011. The
fifteen month financial year is a result of the change in fiscal
year end from June 30 to December 31. The MD&A should
be read in conjunction with the audited consolidated financial
statements and notes thereto (“The Audited Annual Consoli-
dated Financial Statements”) of Teranga Gold Corporation
(“Teranga” or the “Company”) as at and for the fifteen months
ended December 31, 2011. The Company’s Audited Annual
Consolidated Financial Statements and MD&A are presented
in United States dollars, unless otherwise specified, and have
been prepared in accordance with International Financial
Reporting Standards (“IFRS”). Additional information
about Teranga, including the prospectus of the Company dated
November 11, 2010, as well as all other public filings, is
available on the Company’s website at www.terangagold.com
and on the SEDAR website (www.sedar.com).
the largest exploration land positions in southeastern
Senegal with a direct or majority controlling joint venture
interest in eleven exploration permits comprising over
1,500km². Management believes that the combination of
its operations and prospective land position 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.
Our mission
Our mission is to share the benefits with all of our stake-
holders through responsible mining. We strive to act as a
responsible corporate citizen by building projects together
with the communities near our planned operations and by
committing to using best available technologies as we carry
out our actions. We aim to achieve benefits for all parties
involved, and to contribute to the sustainability and im-
proved livelihoods for the communities in which we operate.
This report is dated as of February 21, 2012. All references
to the Company include its subsidiaries unless the context
requires otherwise.
Our Vision
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 acquire the Sabodala gold mine and a large
regional exploration land package, located in Senegal,
West Africa, along with shares held in Oromin Explorations
Ltd. (“Oromin”) from Mineral Deposits Limited (“MDL”),
collectively referred to as the Sabodala Gold Assets.
The Sabodala gold mine, which came into operation in
2009, is located 650 kilometres east of the capital of Sen-
egal, Dakar within the West African Birimian geological belt
in Senegal, and about 90 kilometres from major gold mines
in Mali. As of December 31, 2011, the Sabodala gold mine
had proven and probable reserves of approximately 1.66
million ounces of gold included in measured and indicated
resources of 2.14 million ounces of gold and inferred
mineral resources of 1.51 million ounces of gold, a reserve
increase of 422,000 ounces since the date of the Initial
Public Offering (“IPO”) in November 2010. In addition to
the Mine Licence, the Company holds one of
To become a preeminent gold producer in West Africa while
setting the benchmark for responsible mining.
Phase 1: Become a mid-tier gold producer in Senegal with
250,000 to 350,000 ounces of annual gold production
with existing infrastructure
Phase 2: Increase annual gold production to 400,000 to
500,000 ounces
GROWtH stRateGY
The Company’s objective is to grow reserves and produc-
tion, which in turn should increase earnings and cash flow,
through both internal exploration discoveries and strategic
acquisitions. The Company is devoting significant resources
to exploring its land package with a view of leveraging the
existing infrastructure and processing plant which is cur-
rently being expanded from a nominal capacity of 2 million
tonnes per annum (“M tpa”) to approximately 4M tpa. Once
expanded, the Sabodala mine is expected to produce a
base of approximately 200,000 ounces of gold per annum.
Blending of higher grade and or softer material could in-
crease the production rate to 250,000 to 350,000 ounces
of gold annually.
2011 AnnuAl RepoRt 2/
Exploration results in 2011, which include an additional
422,000 ounces of additional reserves, 111,000 ounces
added to measured and indicated resources and 740,000
ounces added to inferred during the year, support manage-
ment’s belief of the potential to expand upon existing gold
mineralization by an additional 20 to 30 million tonnes (“Mt”)
at grades between 1.5 and 2.0 gpt for a total gold inventory
of 2.5 to 3.5 million ounces from the Company’s 33km²
Sabodala Mining License (“ML”) over the next 12 to 18
months. The larger gold inventory base is expected to result
from the success of deepening the Sabodala pit to the
north along the Main Flat Extension and Lower Flat Zone,
extension of the Masato deposit onto the ML and conver-
sion of Niakafiri resources to reserves. Exploration success
on the ML alone would significantly increase the mine life
and provide a solid production base to build on through the
Regional Exploration Program. On the ML alone a minimum
of 6 drill rigs are expected to be testing new targets as well
as seeking to convert existing resources to reserves at an
estimated cost of approximately $20 million in 2012.
In addition to the exploration program on the ML, the
Company has interests in 11 exploration permits, collectively
referred to as the Regional Development Package, in which
active drill programs are underway on targets located on
these exploration permits that management believes have
strong potential for at least smaller high-grade or oxide
deposits as well as the potential for world-class (+ 5 million
ounce) discoveries similar to those found on the same gold
belt in Mali approximately 90km from the Sabodala mine.
Therefore, management is pursuing an extensive multi-year
exploration program designed to test over 60 anomalies,
targets and prospects that have already been identified as
requiring additional analysis, as well as identify new targets
for testing. The Regional Exploration Program budget for
2012 is expected to total approximately $20 million for
the year to continue the systematic drilling and evaluation
program. The budget would likely increase if a discovery was
made during the year. The first of the regional exploration
targets, referred to as Gora, will move, subject to receipt
of all permits, from an exploration project to a development
project, as exploration drilling has confirmed a small high-
grade deposit. Management is targeting permitting and
development of Gora to be completed in late 2012 or early
2013, which could increase production in 2013. The
Company expects to generate free cash flow from opera-
tions in 2012 and beyond which should enable it to
self-fund the extensive exploration program and develop
new satellite deposits.
On December 23, 2011, the Company’s wholly-owned explo-
ration subsidiary, Sabodala Mining Company SARL (“SMC”)
entered into a joint venture agreement with two private
Spanish exploration companies to acquire a 75 percent
interest in their 50km² Garaboureya North exploration
permit in eastern Senegal, approximately 65km from the
Company’s mill on the ML. This permit is located about
6km from the Senegal-Mali Shear Zone, which on the
Malian side hosts several multi-million ounce deposits, less
than 20km from the Garaboureya North permit. Historic
work identified an intense 4km x 3km anomaly located on
a North East trending secondary structure. The area is to
a large extent covered by laterite and previous drilling has
been wide-spaced and of a cursory nature, yet intersected
several high grade zones of gold mineralization. Manage-
ment is very encouraged by the potential of this prospect
and will work to get it to a drill ready stage by end of the
second quarter of 2012.
Not including the recently acquired interest in the
Garaboureya North exploration permit, there are currently
40 targets that have been identified on the Company’s
1,455km² regional land package (the “Regional Land Pack-
age”), all within trucking distance of the mill. All of the 40
targets are expected to be drill tested through the end of
2012. A further 20 targets have been evaluated with RAB
drilling or trenching. With the addition of Garaboureya North
the Regional Land Package increases to over 1,500km2
with additional targets to be identified and tested in 2012.
There were 11 drill rigs on the Regional Land Package dur-
ing the quarter ended December 31, 2011.
Beyond the current Regional Land Package, the Company
is focused 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 initially in Senegal but
ultimately elsewhere in West Africa.
With the completion of the mill expansion, scheduled for
the first quarter of 2012, production for 2012 is expected
to increase to between 210,000 to 225,000 ounces, an
increase of 65 percent over 2011, while cash costs are
expected to decline to between $600 to $650 per ounce,
or $675 to $725 per ounce under the previous calculation,
a decrease of approximately 20 percent compared to 2011.
The higher production and cash margins are expected to
fund our exploration and growth strategy.
demeRGeR FROm mineRal dePOsits
limited (“demeRGeR”)
On November 23, 2010, Teranga completed the acquisition
of the Sabodala gold mine and a regional exploration pack-
age by way of a demerger from MDL. As part of the demerger
certain assets consisting of all of the issued and outstanding
(1) While management has confidence in its projections based on exploration work completed to date, this exploration target is not a Mineral Resource. The potential
quality and grade is conceptual in nature and there has been insufficient exploration to define a Mineral Resource. It is uncertain if further exploration will result in
the determination of a Mineral Resource.
teranga gold corporation / management’s discussion & analysis shares of Sabodala Gold (Mauritius) Limited, which holds
a 90 percent interest in the Sabodala Gold Operations SA
(“SGO”), the holder of the Sabodala gold mine, and a 100
percent 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) Lim-
ited; and 18,699,500 common shares of Oromin Exploration
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 with the remainder retained by MDL) 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.
During the preparation of the financial statements for the
fifteen months ended December 31, 2011, the Company
identified two changes required relating to the net assets
acquired as part of the demerger from MDL on November
23, 2010. Property, plant and equipment was understated
by $8.4 million related to accelerated depreciation of mo-
bile equipment in excess of the Company’s policy. Stockpile
inventory was overstated by a total of $12.3 million due to
accelerated depreciation related to mobile equipment and
costs assigned to inventory in excess of net realizable value.
The restated net assets as at November 23, 2010 reflect
a total decrease of $3.5 million after adjusting the non-
controlling interest with a corresponding adjustment to the
Company’s share capital.
cOnsOlidated ResUlts
(Us$000’s)
Revenue
Cost of sales
Gross profit
Other income
Administration expenses
Stock-based compensation
Finance costs
Exploration and evaluation expenditures
Net foreign exchange gains
Net change in unrealized gains on gold hedge
Net change in unrealized losses on oil hedge
loss before tax
Income tax
loss for the period
Profit attributable to non-controlling interest
loss attributable to shareholders of teranga
3/
Basis OF PResentatiOn
The transfer of the Sabodala Gold Assets into the Company
is considered a transaction between entities under com-
mon 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 com-
prehensive loss for the fifteen months ended December
31, 2011 reflects the corporate activities since incorpora-
tion of Teranga on October 1, 2010 and the operations of
SGO from November 23, 2010. The comparable period
for 2009 is not presented. The production statistics in
this MD&A reflect operating results for the 2011 calendar
year as well as for the period from November 23, 2010 to
December 31, 2011.
change in Financial Year
On May 10, 2011 the Board of Directors passed a resolution
setting the financial year end of the Company at December
31st. The Board felt this change would better synchronize its
financial reporting with that of comparable companies within
the mining sector as well as better align its financial report-
ing with its business planning cycle. For further information
on the details of this change, please refer to the Notice of
Change of Year End report filed by the Company on SEDAR
pursuant to National Instrument 51-102.
15 months ended
december 31, 2011
187,141
(151,033)
36,108
848
(12,043)
(12,411)
(2,946)
(31,659)
4,486
1,789
(113)
(15,941)
92
(15,849)
3,023
(18,872)
2011 AnnuAl RepoRt
4/
ReVieW OF Financial ResUlts
Loss for the Period
For the fifteen months ended December 31, 2011 the
consolidated loss totalled $15.8 million or $0.09 per share
largely due to the impact of the Company’s gold hedge
book. Deliveries under gold hedge agreements reduced
revenue and operating profit by $49.7 million. The loss for
the fifteen months ended December 31, 2011 was also
impacted by lower than expected ounces sold and higher
than expected operating costs, as well as, high exploration
costs and stock-based compensation expense.
Revenue
Revenue of $187.1 million for the fifteen months ended
December 31, 2011 represents gold sales of 153,728
ounces. Seventy two thousand ounces were delivered into
gold hedge contracts at $846 per ounce, representing 47
percent of gold sales for the fiscal year, and 81,728 ounces
of gold were sold into the spot market at an average price
of $1,537 per ounce resulting in an average realized price
for the fiscal year of $1,213 per ounce.
Overall, revenues were reduced by $49.7 million for the
fifteen months ended December 31, 2011 due to deliveries
into hedge contracts. The hedge contracts were required
as part of the project finance facility with Macquarie Bank
Limited (the “Project Finance Facility”) that was put in
place to construct the Sabodala Mine. The Project Finance
Facility was fully repaid on September 30, 2010 and the
only remaining obligation under the Project Finance Facility
are these hedge contracts. The obligations under the hedge
contracts are expected to be extinguished by August 2013
or earlier if the Company chooses to accelerate deliveries
which at year end total 174,500 ounces representing ap-
proximately 8 percent of our resource base.
Cost of Sales
Cost of sales for the fifteen months ended December 31,
2011 totalled $151 million consisting of mine production
costs, realized gains on oil hedge contracts, depreciation
and amortization, royalties, rehabilitation costs and inven-
tory movement costs.
Mine production costs totalled $127.5 million for the fifteen
months ended December 31, 2011. Mine production costs
for 2012 are expected to increase mainly due to higher
mining costs due to higher drilling, blasting and fuel costs
and processing costs resulting from the expansion of the
mill, doubling milling capacity.
Depreciation and amortization for the fifteen months ended
December 31, 2011 totalled $37.4 million or $244 per
ounce sold. Depreciation and amortization expense for
2012 is expected to increase to approximately $45 million,
or approximately $200 per ounce sold due to an increase in
gold sales and higher amortization associated with the mill
expansion. The lower per ounce amount reflects the impact
of higher production on fixed assets amortized under the
straight-line depreciation method.
The realized gain on oil hedge contracts totalled $2.3 million
for the fifteen months ended December 31, 2011 as oil
prices averaged $93 per barrel above our oil hedge contract
price of $70 per barrel. The Company’s oil hedge contracts
are based on West Texas Intermediate spot oil price,
however site fuel costs are based on Brent crude spot oil
price. During 2011 a historic gap in spot prices developed
between the two exchanges, resulting in our oil hedges
being less effective because of the $13.4 per barrel differ-
ence in the average spot prices which negatively impacted
our cash cost per ounce. The Company has hedged 20,000
barrels per quarter through March 31, 2013 representing
approximately 27 percent of estimated quarterly consump-
tion in 2012 once the mill expansion is complete.
Royalties for the fifteen months ended December 31,
2011 totalled $7 million. Royalties are calculated based on
three percent of the average spot price of gold rather than
the average price realized by the Company. Royalties were
higher than planned due to higher spot gold prices.
Administrative Expenses
Administration expenses of $12 million for the fifteen
months ended December 31, 2011 comprise $4.2 million
for corporate employee costs, $2.9 million for audit and
legal fees and $4.9 million for other administration costs.
Administration expense, which includes costs of the
corporate and Dakar offices are expected to total approxi-
mately $2.5 to $3.0 million per quarter or $10 to
$12 million for 2012.
Stock-Based Compensation
During the fifteen months ended December 31, 2011 a
total of 17,980,000 common share stock options were
granted to directors, officers, employees and consultants,
of which 362,778 were cancelled during the same period.
No stock options were exercised during the fifteen month
period ended December 31, 2011. For 2012, stock-based
compensation expense is expected to include approximately
70 percent of any new grants in 2012 and 25 percent of
the cost of stock options awarded in the fifteen month
period ended December 31, 2011.
teranga gold corporation / management’s discussion & analysis Stock option compensation – expensed
The estimated fair value of stock options is amortized over
the period in which the options vest which is normally three
years, however under IFRS the accelerated method
of amortization is applied to stock based compensation
which results in about 70 percent of the cost of the stock
options being expensed in the first year of grant. For those
options which vest on single or multiple dates, either on
issuance or on meeting milestones (the “measurement
date”), the entire fair value of the vesting options is recog-
nized immediately on the measurement date.
Of the 17,617,222 common share stock options issued
and outstanding as at December 31, 2011, 17,442,222
vest over a three-year period and 175,000 vest based
on achievement of certain milestones. The fair value of
options that vest upon achievement of milestones will be
recognized as milestones are achieved and the value can
be reasonably measured.
Net Foreign Exchange Gains
The Company generated foreign exchange gains of
$4.5 million for the fifteen months ended December 31,
2011 primarily related to realized gains from the Sabodala
gold mine operating costs recorded in the local currency
and translated into the US dollar functional currency.
Net Change in Unrealized Gain on Gold Hedge
The unrealized non-cash gain of $1.8 million for the fifteen
months ended December 31, 2011 resulted from a reduc-
tion in our financial derivative liability due to 72,000 ounces
delivered into hedge contracts during the period partially off-
set by an increase in the spot price of gold from November
23, 2010 by $207 per ounce of gold. As a result, the total
mark-to-market loss of the remaining 174,500 ounces of
gold under gold hedge contracts recorded as a financial de-
rivative liability decreased to $129.6 million as the average
forward price of the remaining contracts of $826 per ounce
is marked to the year end spot price of $1,566 per ounce.
Net Change in Unrealized Loss on Oil Hedge
The unrealized oil hedge losses of $0.1 million for the
fifteen months ended December 31, 2011 resulted from
a decrease in financial derivative asset due to 100,000
barrels delivered into oil hedge contracts during the fifteen
months ended December 31, 2011 partially offset by an
increase of $18 per barrel over the November 23, 2010
5/
15 months ended
december 31, 2011
$12,411
spot price of oil. The overall non-cash mark-to-market gain
of the remaining 100,000 barrels of fuel oil outstanding at
a hedge price of $70 per barrel compared to a $99 per
barrel spot price at year end, recorded as a financial deriva-
tive asset, totalled $2.8 million at December 31, 2011.
Finance Costs
Finance costs for the fifteen months ended December
31, 2011 of $2.9 million reflect interest costs related to
the mobile equipment loan outstanding, amortization of
capitalized borrowing costs, political risk insurance relating
to project finance facility and bank charges. Finance costs
for 2012 are expected to increase marginally due to higher
political risk insurance coverage.
Exploration and Evaluation Expenditures
Exploration and evaluation expenditures for the fifteen
months ended December 31, 2011 totalled $31.7 million re-
flecting regional exploration costs incurred during the period
related to drill programs as well as target identification work
underway. Exploration and evaluation expenditures for 2012
are expected to total approximately $20 million. The lower
expected exploration costs for 2012 reflects the transition
from the higher cost diamond drilling at Gora in to the lower
cost RC and RAB drilling. If a major discovery is made, ex-
ploration expenditures may rise above the planned amount.
Outlook for 2012
With the completion of the mill expansion, gold produc-
tion for 2012 is expected to total between 210,000 to
225,000 ounces, an increase of 65 percent over 2011.
For 2012 onward, the Company will report cash costs of
sales after adjusting for inventory movement, in line with
its accounting policies and reported cost of sales in the
financial statements and in line with industry standards.
As a result, total cash costs for 2012 are expected to be
between $600 to $650 per ounce, or $675 to $725 per
ounce under the previous calculation, a decrease of
approximately 20 percent over 2011.
The decline in cash costs expected in 2012 is largely due
to lower mining cost per ounce, which is expected to decline
from $430 per ounce in 2011 to approximately $300 per
ounce in 2012 and to lower per ounce processing and
administration costs, due to the higher production rate.
2011 AnnuAl RepoRt
6/
The regional exploration budget for 2012 is expected to to-
tal approximately $20 million. In total, between capitalized
mine site exploration and regional exploration expenditures,
the Company expects to spend approximately $40 million
in 2012.
Capital expenditures for 2012 are expected to total approxi-
mately $30 million, primarily for the completion of the mill
expansion, additional mining equipment and construction of
a new tailings management facility as well as an additional
$20 million for capitalized ML exploration costs.
Material Assumptions
Material assumptions or factors used to forecast production
and costs include:
• Gold price of $1,600/oz
• Exchange rates:
– $1USD: $1AUD
– $1USD: $0.002West African Franc (XOF)
– $1USD: $1.37EUR
• Fuel price assumptions
– Light fuel oil: $1.20/litre
– Heavy fuel oil: $1.15/litre
Other important assumptions include the following:
• Mill expansion completed on time and operates
as designed
• Any political events, such as governmental elections,
are not expected to impact operations, including move-
ment of people, supplies and gold shipments
• Grades and recoveries will remain consistent with the
life-of-mine plan to achieve the forecast gold production
• No unplanned delays in or interruption of scheduled
production from Sabodala mine
• Availability of mining equipment due to overruns on
scheduled major component replacements planned
for the year
Review of Operations
Gold sold from November 23, 2010, the date the Company
acquired the Sabodala mine, to December 31, 2011
totalled 153,728 ounces. Total cash costs per ounce of
gold sold totalled $872 per ounce for the period from
November 23, 2010 to December 31, 2011. Gold sold for
the calendar year totalled 137,136 ounces at total cash
costs of $900 per ounce. Production was lower and total
cash costs were higher than plan. Production was lower
than budget due to the delay in accessing high grade material
in the December 2011 quarter. The higher than budget
cash costs were primarily a result of lower than planned
production as well as higher fuel, labour and maintenance
costs. The higher cash cost per ounce during 2011 also
reflect higher mining costs related to additional stripping
required as part of the mill expansion that added approxi-
mately $120 per ounce to cash costs.
During 2011, the Company implemented a number of
changes to the operation to lower operating risk and ensure
that both physical and financial targets are met. These
changes include a mill expansion and automated controls
to better blend materials to increase throughput; a second
access ramp to the pit; better drilling, blasting and main-
tenance of mobile fleet in the mine to increase the mining
rate, as well as changes to employee compensation includ-
ing higher base pay and benefits as well as a bonus plan
designed to incentivize and retain employees. The Company
believes that these changes will help improve operating
performance over the short and longer term. The impact
of these changes, many of which were not budgeted in
2011, increased costs in all areas of the operation but are
expected to result in a better operation overall.
teranga gold corporation / management’s discussion & analysis Production statistics
KeY statistics
Operating results (1)
Ore mined
Waste mined
Total mined
Strip ratio
Ore processed
Head grade
Recovery rate
Gold produced (1)
Gold sold
Average price received
Total cash cost (incl. royalties)
Mining (cost/t mined)
Milling (cost/t milled)
G&A (cost/t milled)
7/
(‘000t)
(‘000t)
(‘000t)
waste/ore
(‘000t)
(g/t)
%
(oz)
(oz)
$/oz
$/oz sold
12 months ended Period from november 23, 2010
to december 31, 2011
december 31, 2011
3,973
21,818
25,791
5.5
2,444
1.87
89.5
131,461
137,136
1,236
900
2.3
16.8
5.8
4,520
23,876
28,396
5.3
2,666
1.92
89.8
147,728
153,728
1,213
872
2.3
16.7
5.7
(1) Gold produced is change in gold in circuit inventory plus gold recovered during the period.
Mining
Total tonnes mined for the period from November 23, 2010
to December 31, 2011 were 4 percent lower than budget
primarily due to a 5 percent decrease in waste tonnes
mined. The decrease in total tonnes mined was mainly due
to lower than planned drilling and loading availability in the
quarter ended December 31, 2011. Management recog-
nized the drilling issue and ordered three new blast hole drill
rigs. Two drill rigs arrived on site at the beginning of January
with a third scheduled to arrive in February 2012, too late
to benefit the 2011 mining rate. To address loading and
hauling rates, management has increased the capital spares
inventory to improve availability of the mobile equipment.
Unit mining costs for the period from November 23, 2010
to December 31, 2011 were higher than budget. The
increase in unit mining costs for the period compared to
budget reflected the impact of higher fuel, labour and
maintenance costs and lower tonnes mined than budgeted
during the period. While the Company budgeted $110 per
barrel fuel oil, a combination of higher in-country transpor-
tation charges, higher Brent crude oil spot prices than bud-
geted and lower West Texas Intermediate crude oil prices,
which reduced the amount of hedge benefit of the higher oil
price, were primarily responsible for the higher unit mining
costs. Unit mining costs for 2012 are expected to increase
marginally due to higher fuel costs budgeted at $120 per
barrel of diesel fuel oil as well as a full year of higher fuel
transportation costs.
Milling
Mill throughput for the period from November 23, 2010
to December 31, 2011 was 4 percent higher than budget
due to the implementation of an automated control system
which helps optimize the blending of ore. The milling rate
is also benefiting from better blasting procedures that are
resulting in increased fragmentation of ore delivered to the
mill. Higher throughput partially offset lower grades pro-
cessed than planned due to the delayed access to higher
grade zones in the December quarter of 2011.
Unit processing costs for the period from November 23,
2010 to December 31, 2011 were higher than budget. The
increase in unit processing costs for the period compared
to budget reflects the impact of higher fuel costs, required
to self-generate power, than budgeted, as well as higher
labour and maintenance costs, partially offset by the higher
throughput rate. Unit processing costs are expected to be
similar to 2011 benefiting from the expansion of the mill,
scheduled for completion in the first quarter of 2012, par-
tially offset by higher power and reagent costs.
General and Administration
Higher general and administration costs for the period from
November 23, 2010 to December 31, 2011 reflect higher
labour and Corporate Social Responsibility (“CSR”) costs.
The Company is embarking on a significant CSR program to
ensure that the operation benefits all stakeholders.
2011 AnnuAl RepoRt
8/
Gold Production
Gold production for the period from November 23, 2010
to December 31, 2011 was 147,728 ounces, which was 5
percent lower than budget due to delayed access to higher
grade zones in the quarter ended December 31, 2011. Gold
production for the calendar year totalled 131,461 ounces,
6 percent lower than budget. Access to the higher grade
ore scheduled for December occurred later in the month
than anticipated, resulting in approximately 17,000 ounces
of gold at 2.37 gpt of ore being stockpiled rather than pro-
cessed before the end of 2011. The high grade stockpiles
are expected to be processed in the first quarter of 2012.
Average Realized Gold Price
During the period from November 23, 2010 to December
31, 2011, 72,000 ounces were delivered into gold hedge
contracts at $846 per ounce, representing 47 percent
of gold sales for the fiscal year, and 81,728 ounces of
gold were sold into the spot market at an average price of
$1,537 per ounce resulting in an average realized price
for the fiscal year of $1,213 per ounce. For calendar year
2011, 61,000 ounces were delivered into gold hedge con-
tracts at $846 per ounce, representing 44 percent of gold
sales for the calendar year, and 76,136 ounces of gold were
sold into the spot market at an average price of $1,548 per
ounce resulting in an average realized price for the calendar
year of $1,236 per ounce. Remaining gold sales subject to
existing hedge contracts total 174,500 ounces or approxi-
mately 8 percent of our resource base.
Total Cash Costs
Total cash costs for the period from November 23, 2010 to
December 31, 2011 were $134 million or 6 percent higher
than budget mainly due to higher fuel, labour and mainte-
nance costs. On a per ounce sold basis for the fiscal year
total cash costs were $872 per ounce or 11 percent higher
than budget due to higher than planned costs and lower than
planned production. Total cash costs for calendar year 2011
were $123.5 million or 8 percent higher than budget. On a
per ounce sold basis for the calendar year total cash costs
were $900 per ounce or 13 percent higher than budget.
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
bases for the reserves are consistent with the Canadian
Securities Administrators National Instrument 43-101 (“NI
43-101”) report. The design for the open pit limits, related
phasing and long-term planning for the Sabodala open
pit were updated as at September 30, 2011. An updated
resource block model was also used, which included minor
local modifications as the majority of the drill hole database
was unchanged from the previous resource block model.
The updated Sabodala pit design is larger than the 2010
design. The new design provides a secondary ramp access
to ensure flexibility and improved productivity. The new
design also adopted slightly steeper pit wall angles. New
mining phases were designed and the mine sequencing was
modified with the objectives of mining the softer oxide ma-
terial preferentially and deepening the pit bottom in the dry
season, while minimizing interaction of operations between
successive phases and presenting the higher grade, lower
stripping ratio portion of the reserve as early as possible.
The Niakafiri pit is unchanged from 2010, however a
slightly lower cut-off grade, reflecting the higher metal price
assumption, was applied and marginally more ounces were
added to the mineral reserve estimate.
Compared to the Company’s NI 43-101 report, dated
September 2010, input parameters for both Sabodala
and Niakafiri were adjusted to reflect updated economic
parameters such as recent cost escalation and, more
significantly, the change in the average long-term gold price
assumption from $900 per ounce to $1,200 per ounce.
The most recent success of the drill program to the north of
the Sabodala ultimate pit was modelled and a new final pit
limit was consequently designed using a $1,250 per ounce
price. This additional reserve is also reported below. The
total proven and probable mineral reserves at December
31, 2011 are set forth in the table below.
mineral reserves
m
tonnes
Sabodala
Niakafiri
Stockpile
subtotal
Sutuba
Gora
Sabodala – additional
total
14.515
0.231
4.211
18.957
–
0.369
Proven
Grade
g/t au
1.51
1.69
0.94
1.39
m oz
au
m
tonnes
0.704
0.013
0.128
0.845
5.375
7.583
–
12.958
– 0.353
0.34
3.232
16.883
–
4.21
0.050
Probable
Grade
g/t au
1.63
1.12
–
0.283
0.274
m oz
au
m
tonnes
19.89
7.814
– 4.211
31.915
0.353
0.709
3.232
36.209
1.33
1.06
5.88
1.26
1.41
0.557
0.012
0.064
0.131
0.764
Proven and
Probable
Grade
g/t au
1.54
1.14
0.94
1.37
1.06
5.01
1.26
1.43
m oz
au
0.987
0.287
0.128
1.402
0.012
0.114
0.131
1.659
19.326
1.44
0.895
teranga gold corporation / management’s discussion & analysis
9/
Julia Martin, PEng, MAusIMM (CP), with AMC Mining
Consultants (Canada), who is independent of Teranga, is a
“qualified person” as defined in NI 43-101 and as a “com-
petent person” as defined in the 2004 Edition of the “Aus-
tralasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves”. Ms Martin has reviewed and
accepts responsibility for the reserve estimate associated
with the Sabodala and Niakafiri pits and stockpiles dis-
closed above. Ms Martin has consented to the inclusion of
this information in the form and context in which it appears
in this MD&A.
The technical information contained in this MD&A relat-
ing to exploration activities within the ML, along with the
reserves statements for Sutuba, Gora and the additional
reserves from the Sabodala pit using $1,250 per ounce are
based on information compiled by Mr. Bruce Van Brunt,
who is a Fellow of The Australasian Institute of Mining and
Metallurgy and is also a registered professional geologist
in the State of Washington, USA. He is also qualified as a
Competent Person as defined in the 2004 Edition of the
“Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves” and is a “qualified
person” as defined in NI 43-101. Mr. Van Brunt has con-
sented to the inclusion of this information in the form and
context in which it appears in this MD&A. Mr. Van Brunt is
a full-time employee of Teranga and not considered to be
independent of Teranga.
The technical information contained in the MD&A relat-
ing to the regional exploration is based on information
compiled by Mr. Martin Pawlitschek, who is a member of
the Australian Institute of Geoscientist. He is qualified as
a Competent Person as defined in the 2004 Edition of the
“Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves” and is a ”qualified
person” as defined in NI 43-101. Mr. Pawlitschek has con-
sented to the inclusion of this information in the form and
context in which it appears in this MD&A. Mr. Pawlitschek
is a full-time employee of Teranga and not considered to
be independent of Teranga.
Compared to the total company’s reserves as of Decem-
ber 31, 2010 of 31.973 Mt at 1.47 gpt or 1.512M oz it is
shown that last year depleted reserve has been more than
replenished.
mineral Resources
Mineral resources as at December 31, 2011 have
been estimated for the Sabodala, Soukhoto, Sutuba,
Niakafiri West and Niakafiri deposits contained within
mining concession area and the exploration permit areas
including Gora, Diadiako, Majiva and Toumboumba,
and are set forth in the tables below. Note the mineral
resources include mineral reserves. Mr. Van Brunt of
Teranga is a “qualified person” as defined in NI 43-101
has reviewed and accepts responsibility for
the resource estimate.
measured
indicated
measured and indicated
mineral Resources
Sabodala
Niakafiri
Gora
Sutuba
total
m
tonnes
28.787
0.278
0.584
–
29.649
Grade
g/t au
1.13
1.74
4.28
–
1.2
m oz
au
m
tonnes
1.047
0.016
0.08
–
1.143
15.585
10.463
0.698
0.353
27.099
Grade
g/t au
0.95
1.1
6
1.06
1.14
m oz
au
m
tonnes
0.478
0.37
0.135
0.012
0.995
44.371
10.741
1.282
0.353
56.747
Grade
g/t au
1.07
1.12
5.22
1.06
1.17
m oz
au
1.525
0.386
0.215
0.012
2.138
(1) Measured Resources include stockpiles which total 4.211 M tonnes at 0.94 g/t for 128,000 ounces.
(2) The cut offs applied are 0.2 g/t or 0.35 g/t for oxide and 0.3 or 0.50 g/t for fresh ore.
(3) CIM definitions were used for mineral resources.
(4) Amounts may not add due to rounding.
2011 AnnuAl RepoRt
10/
inferred mineral Resources
m tonnes
Grade g/t au
m oz au
Sabodala
Niakafiri
Niakafiri West
Soukhoto
Gora
Diadiako
Majiva
Toumboumba
total
26.205
7.248
7.144
0.566
0.286
2.917
2.593
0.855
47.814
1.01
0.88
0.82
1.32
4.16
1.49
0.64
1.5
0.98
0.848
0.205
0.188
0.024
0.038
0.119
0.047
0.041
1.51
Note: The cut offs applied are 0.20 g/t or 0.35 g/t for oxide and 0.30 g/t or 0.50 g/t for fresh (sulphide) material.
imPact OF KeY ecOnOmic tRends
Price of gold – Fifteen month Gold Price History
)
z
o
/
$
S
U
(
x
i
F
M
P
n
o
d
n
o
L
–
e
c
i
r
P
d
o
G
l
2,000
1,920
1,840
1,760
1,680
1,600
1,520
1,440
1,360
1,280
1,200
O ct–10
N ov–10
D ec–10
Jan–11
Feb–11
M ar–11
A pr–11
M ay–11
Jun–11
Jul–11
A ug–11
Sep–11
O ct–11
N ov–11
D ec–11
Source: London Bullion Marketing Association
The market price of gold is the primary driver of the
Company’s profitability and ability to generate free cash
flows. During 2011 the gold price experienced volatility
with the price ranging from $1,319 per ounce to an all-time
high of $1,895 per ounce due to continuing economic and
political uncertainties.
The gold price is expected to continue to be influenced
by long-term trends in global mine production, investment
demand, the impact of central bank gold activities, the
ongoing negative real interest rate environment in the
United States and continued European sovereign debt
and global recessionary concerns.
teranga gold corporation / notes to consolidated financial statements
inflationary cost Pressures – spot crude Oil Prices (Wti vs. Brent)
11/
l
e
r
r
a
b
r
e
p
$
130
120
110
100
90
80
70
60
O ct–10
N ov–10
D ec–10
Jan–11
Feb–11
M ar–11
A pr–11
M ay–11
Jun–11
Jul–11
A ug–11
Sep–11
O ct–11
N ov–11
D ec–11
Brent
WTI
Fuel costs for power generation and operation of the mobile
fleet are the single largest cost to the Sabodala mine. Fuel
purchased to operate the power plant and mobile equipment
fleet totalled $42 million in 2011 or 32 percent of operating
costs. The Company hedged a portion of its exposure to
fuel costs by hedging its exposure to crude oil prices. The
Company has hedged 20,000 barrels of oil per quarter
through March 31, 2013 representing approximately 27
percent of quarterly consumption. The Company’s oil hedge
contracts are based on West Texas Intermediate spot oil
price, however Sabodala site fuel costs are based on Brent.
currency Fluctuations – Usd exchange Rate Performance against eUR
e
t
a
R
e
g
n
a
h
c
x
E
D
S
U
/
R
U
E
0.79
0.77
0.75
0.73
0.71
0.69
0.67
0.65
O ct–10
N ov–10
D ec–10
Jan–11
Feb–11
M ar–11
A pr–11
M ay–11
Jun–11
Jul–11
A ug–11
Sep–11
O ct–11
N ov–11
D ec–11
A portion of operating costs and capital expenditures of
Sabodala gold mine operations are denominated in currencies
other than US dollars. A large share of the Company’s non
US dollar operations costs are denominated in EUR and EUR
linked currencies, whereas the revenue from the gold sales is
in US dollars therefore the Company does face some risk of
EUR appreciation against US dollars. The EUR strengthened
before weakening against the US dollar during 2011, as
highlighted in the graph above. Generally, as the US dollar
strengthens, the EUR and other currencies weaken, and
as the US dollar weakens, the EUR currency strengthens.
All of the Company’s production comes from its operations
in Senegal therefore costs will continue to be exposed to
foreign exchange rate movements. The Company continues
to monitor currency exposure on an ongoing basis and will
implement a hedging strategy if deemed appropriate.
2011 AnnuAl RepoRt
12/
Plant exPansiOn
The Sabodala gold plant expansion is underway to increase
capacity from 2M tpa to approximately 4M tpa. Once
expanded, the mine is expected to produce a base of
200,000 ounces of gold per annum up from 131,461
ounces produced in calendar 2011. Blending of higher
grade and/or softer material could increase the production
rate to 250,000 to 350,000 ounces of gold annually.
Additions to the processing plant include a partial secondary
crushing facility and new stockpile/reclaim facilities to
debottleneck the semi-autogenous (SAG) mill, a second ball
mill and additional carbon-in-leach capacity. The Sabodala
power station has been 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 by the
end of the first quarter of 2012. The estimated capital cost
for the plant expansion is expected to total approximately
$62 million, which is 10 percent higher than the original
budget mainly due to project scope changes, an increase
in price for structural steel fabrication and higher foreign
currency costs.
Plant expansion expenditures to December 31, 2011
totalled $47.6 million. The balance of capital expenditures
totalling $14.4 million is expected to be spent in the first
half of 2012.
During the quarter ended December 31, 2010, the Com-
pany increased its mining capacity ahead of the proposed
expansion of the Sabodala gold plant to ensure sufficient
ore was available for the expanded mill. This equipment,
costing $14.4 million, was financed by an increase in the
fleet lease facility with Société Générale.
resources to reserves. On the ML alone, this would increase
the mine life to approximately 15 years at a run rate of
about 200,000 ounces of gold produced annually and
provide a solid production base to build on through the
Regional Exploration Program3. In order to increase reserves
on the ML a minimum of 6 drill rigs are expected to be
testing new targets as well as seeking to convert existing
resources to reserves. The Company plans to drill 77,000
metres at a cost of $20 million in 2012. While management
has confidence in its projections based on exploration work
done to date, the potential quantity and grade disclosed
herein is conceptual in nature, and there has been insuffi-
cient exploration in most areas to define a mineral resource,
therefore it is uncertain if further exploration will result in
the targets being delineated as a mineral resource.
Highlights of drilling during the year 2011 on the ML
include the intersection of significant widths of high grade
mineralization outside the Sabodala ultimate pit limit as
part of the Main Flat Extension drill program which is
expected to lead to an expansion of the final pit design
and increased reserves, the successful intersection and
extension of the Masato deposit down dip 200 metres
onto the ML and 500 metres along strike with potentially
underground mineable high-grade ore, as well as discovery
of multiple high-grade zones in the Lower Flat Zone (“LFZ”)
at depth at Sabodala.
During 2011 Reverse Circulation (“RC”) and Diamond drilling
(“DD”) on the ML totalled 79,200 metres from 5 drills at
cost of $14.4 million. The aggressive investment in drilling
has resulted in significant advances in understanding the
structural controls on gold mineralization on the ML and
throughout the Sabodala district. There are 7 drills operating
on the ML at the present time (6 DD and 1 RC) and pending
rig availability this number may increase to expedite resource
expansion and reserve definition drilling through 2012.
mine license exPlORatiOn
main Flat extension (“mFe”)
Exploration results in 2011 support management’s belief
of the potential to expand upon existing gold mineralization
by an additional 20 to 30 Mt at grades between 1.5 and
2.0 gpt for a total inventory of 2.5 to 3.5 million ounces
from the Company’s 33km² Sabodala ML over the next 12
to 18 months². The larger gold inventory base is expected
to result from the success of deepening the Sabodala pit
to the north along the Main Flat Extension, extension of
the Masato deposit onto the ML and conversion of Niakafiri
The MFE is one of the principal gold hosts in the Sabodala
deposit. In the southern part of the deposit this structure
dips shallowly to the west, rolls flat and then rolls to a
moderate northerly dip as it exits the ultimate pit. The
MFE drill program is designed to test the continuity of this
structure to the north beginning with in-filling holes in the
deepest part of the current mine design then stepping out
to the north.
(2) While management has confidence in its production projections based on exploration work completed to date, this exploration target is not a Mineral Resource. The
potential quality and grade is conceptual in nature and there has been insufficient exploration to define a Mineral Resource. It is uncertain if further exploration
will result in the determination of a Mineral Resource.
(3) This exploration/production target is not a Mineral Resource. The potential quality and grade is conceptual in nature and there has been insufficient exploration to
define a Mineral Resource. It is uncertain if further exploration will result in the determination of a Mineral Resource. Reaching this level of production is based
on achieving success associated with the exploration target set out above and reflects existing mill capacity as well as Management’s confidence in upside potential of
exploration results on the ML based on drilling results to date.
teranga gold corporation / management’s discussion & analysis 13/
Drilling targeting the MFE immediately adjacent to the
current ultimate pit, as well as the LFZ located below and
to the north of the MFE, confirms the continuation of the
mineralized zone with further drilling planned. The MFE and
LFZ remain open down plunge and to the northwest.
grading 3.4 gpt has been classified as inferred outside the
ultimate pit in 2.2 Mt. Much of this resource is now under
consideration for open pit mining and therefore the under-
ground analysis has been tabled pending the results of the
open pit engineering on-going.
The drill program for the MFE for the first half of 2012 is
designed to convert inferred resources north of the current
ultimate pit to reserves; extend the MFE zone measured
and indicated resource down dip to the west; additional
deep drilling is required to develop the LFZ mineable re-
source to depth; test for extensions of the LFZ to the east;
and test for parallel zones beneath the Sabodala pit.
The goal of the MFE/LFZ programs is to add 250,000 to
500,000 ounces of gold to the open pit mineable gold
inventory at an average grade between 1.5 – 2.0 gpt, as
well as potentially a similar amount to lower/underground
at an average grade between 3.0 – 4.0 gpt, over the
next 12 to 18 months.4
corridor and ayoub’s target area
Drilling along the Corridor northeast of the Sabodala pit
intersected mineralization along the Ayoub’s portion of the
target area. The system, although low grade, is continuous
and is showing Sabodala style albitic alteration to the north
where the target remains open down dip and along strike.
The position of the Ayoub’s mineralization in the Corridor
lends itself to sharing stripping for including deeper MFE
mineralization into the ultimate pit.
Underground mining desktop analysis
Teranga commissioned an engineering firm to undertake a
desktop study to identify potentially suitable underground
mining methods and provide stoping cost estimates for the
resources outside the 2010 Sabodala ultimate pit. Results
of the study are positive with approximately 200,000
ounces of material currently classified as inferred outside of
the 2010 ultimate pit now identified as potentially mineable
underground. The study was based on the 2009 Sabodala
resource model.
Since the study was commissioned, Teranga has completed
drilling that confirms that the Sabodala mineralization
extends more than 300 metres below the deepest zones
included in the 2009 model and this desktop study. In
total, 260,000 ounces at 3.1 gpt grade have been classi-
fied as measured and indicated outside the ultimate pit in
2.6 million tonnes. Another 240,000 ounces of material
masato
The Masato deposit outcrops on the neighbouring Oromin
Joint Venture Group (“OJVG”) property to the east of the
ML approximately 2km from the Sabodala mill. The OJVG
has defined an open pit mineable reserve of 0.5 million
ounces at Masato. The deposit has a strike length of over
2km. Gold is hosted in a shear zone that strikes north and
sits immediately east of the Teranga/OJVG property bound-
ary in the main deposit area. To the north the Masato de-
posit inflects and strikes to the NE away from the Teranga
property boundary. To the south the Masato deposit strikes
onto the Teranga ML but has not been drill tested.
Drilling in 2011 confirmed a mineralized strike length of
500 metres and a dip extent of 200 metres on the ML.
The Masato deposit remains open to depth and along strike
and is currently being tested in both directions by two drills.
The objectives for Masato for 2012 include in-filling the
200 metres by 500 metres zone identified in the first
pass 2011 drilling in preparation for a resource estimate,
further definition drilling on the high-grade pod of gold
mineralization located on the north end of the deposit as
well as to locate the southern extension of Masato that
strikes onto the ML.
Management expects that continued positive drilling results
will lead to the defining of a significantly larger body of gold
mineralization at Masato on the ML in 2012.
niakafiri
A drill program is planned at the Niakafiri deposit immedi-
ately below the current open pit reserve where the deposit
remains open below at depth. Drilling is planned to begin in
the second half of 2012 pending community discussions.
Expectations are to increase reserves and resources in
2012 at Niakafiri.
niakafiri West and soukhoto
A significant drill program is also planned across the
Niakafiri West and Soukhoto deposits to both in-fill and
extend the current resources that are separated by 500
metres of undrilled strike length. Gold mineralization in
(4) This “exploration target” is not a Mineral Resource. While management has confidence in its projections based on exploration work done to date, the potential
quantity and grade disclosed herein is conceptual in nature, and there has been insufficient exploration to define a mineral resource, therefore it is uncertain if
further exploration will result in the targets being delineated as a Mineral Resource.
2011 AnnuAl RepoRt 14/
both deposits is hosted in multiple shallow dipping zones
with more steeply dipping high-grade zones located in
crossing structures. The drill program is expected to run
throughout the 2012 campaign with resources updated
at year end.
dinkokhono
Located 1km north of the Niakafiri deposit and 1km south
of the Sambaya Hill anomaly on the Niakafiri shear system
Dinkokhono is expected to be the target of 12,000 metres
of drilling in 2012. Previous drilling identified low-grade
mineralization within the Niakafiri shear from surface to a
depth of 100 metres. Re-interpretation of the Dinkokhono
structural controls on gold mineralization and the discovery
of the Mamasato deposit on OJVG ground less than 1km
to the east have contributed to a new approach to drilling
this deposit. The program is expected to test for North
West and North East high-grade crossing structures in
known mineralized zones and is expected to test for the
extension of the Mamasato deposit onto the Teranga ML.
Pending results, management believes the program could
add resources by mid-2012 and add to open pit mineable
reserves at year end.
ReGiOnal exPlORatiOn
In addition to the exploration program on the Company’s
33km² ML, management believes that the Regional Land
Package has significant prospective potential for satellite
high-grade deposits similar to Gora as we know it today,
as well as the potential for world-class (+ 5 million ounce)
discoveries similar to those found on the same gold belt
in Mali, approximately 90km from the Sabodala mine.
Therefore, management is pursuing 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.
Not including the recently acquired interest in the
Garaboureya North exploration permit, there are currently
40 targets that have been identified on the Regional Land
Package, all within trucking distance of the mill. All of
the 40 targets are expected to be drill tested through the
end of 2012. With the addition of Garaboureya North the
Regional Land Package increases to over 1,500km² with
additional targets to be identified and tested in 2012.
In 2011 the Company completed approximately 151,000
metres of Rotary Air Blast (RAB) drilling, 86,000 metres of
RC and 29,000 metres of DD drilling at cost of $31.7 million.
There were 11 drill rigs on the Regional Land Package dur-
ing the quarter ended December 31, 2011. The exploration
cost for the Regional Exploration Program is estimated at
$20 million for 2012 consisting of 90,000 metres of RC/
DD and 140,000 metres of RAB. There is expected to be a
reduction in DD in favour of more RAB and RC rigs, as the
resource drilling at Gora is completed and more first pass
testing of targets takes place during the first half of 2012.
Gora
Initial exploration results from the Gora Project, located
22km from the Company’s Sabodala gold mine confirmed a
high-grade gold deposit. As a result of the exploration suc-
cess to date, the Company increased its exploration budget
for the Gora Project in 2011 to complete exploration drilling
at depth as well as along strike as the deposit remains open
in all directions. High-grade drill intersections continue
to expand the potential footprint of the deposit, while a
completed induced polarization survey (“IP”) has revealed
additional anomalies along strike of the current resource
which were drill tested during the last quarter of 2011. The
Company is running a number of processes in parallel to
efficiently develop Gora as quickly as possible, including the
ongoing exploration program, permitting and feasibility level
economic analysis with the objective of having production in
early 2013, permitting dependent.
The Company has identified a reserve of 114,000 ounces
at a grade of 5.01 gpt. This estimate is based on data to
the end of December 2011. Resource drilling at Gora was
completed in November 2011. A number of drill samples
were sent for check assays to another laboratory to ensure
reporting compliance of all data prior to updating the re-
source estimate.
The vein system has been intersected for an additional 200
metres to the north with some isolated high grade intersec-
tion just outside the resource drill area.
To the southwest at least two mineralized quartz veins can
be traced along strike from the Gora resource drilling, and
these correlate well with veins 1 and 2 and are close to
coincident with some linear features interpreted from the IP.
The drilling results received so far, extend the strike length
of mineralization by 200 metres to the southwest, while the
associated IP trends can be traced for at least 1,300 metres
along strike. Exploration drilling along this trend continued
during the last quarter of 2011.
diadiako
Additional diamond drilling during the last quarter of 2011
and detailed interpretation of the geological sections result-
ed in the definition of an inferred resource at Diadiako. The
mineralized system at Diadiako is continuous and predict-
able with drilling intersecting the structure in a predictable
fashion over a strike length of 900 metres and down dip to
a vertical depth of at least 200 metres. Manual calcula-
tion resulted in an inferred resource estimate of 2.92 Mt at
teranga gold corporation / management’s discussion & analysis 15/
1.49 gpt for a total of 119,000 ounces. A cut-off of 0.2 gpt
and no top cap were used in this exercise, while volumes
were kept to a conservative extent.
The mineralization consists of two sub-parallel northeast
and moderately southeast dipping (30°) structures. The up-
per zone, referred to as the main zone, has strike continuity
of 900 metres and down dip continuity to a vertical depth
of 200 metres, and at a 0.2 gpt cut-off averages 1.08 gpt,
has an average thickness of 3.1 metres and is open to the
northeast and down dip. The main zone hosts around 90
percent of the inferred resource.
The lower zone is separated by 14 to 50 metres of wall
rock and sits in the foot wall of the Main zone. This zone
hosts 10 percent of the resource and has strike continu-
ity over at least 400 metres, averages 2.39 gpt and is on
average 2 metres wide. Mineralization remains open along
strike to the northeast and down dip past a vertical depth
of 200 metres.
Computer based modelling and calculations are in progress
and strategically placed infill drilling may be carried out
during 2012. Structural review of the core indicates that
high grade shoots are likely to occur in this system. A review
is underway to target these shoots with minimal drilling.
Recent RAB drilling to the northeast identified over
1,000 metres of strike continuation of these structures
with several sub-parallel zones. These are expected to
be drill tested during 2012.
toumboumba (sabodala nW) and majiva central/
north (makana Permit)
These two projects drilled in 2011 are currently undergoing
interpretation and three-dimensional modelling to allow a
preliminary estimate of mineralized rock volumes. It is
anticipated that this work will be completed in February,
after which additional drilling maybe required.
Majiva represents a low-grade, bulk tonnage target on the
same structure that hosts the Niakafiri deposit on the ML,
as well as a number of similar discoveries on the interven-
ing ground.
Toumboumba is a shear vein system hosted in the Falombou
granite and has potential for a small, shallow, oxide resource,
located 10km to the northwest of the Sabodala mill.
The successes of the Regional Exploration Program during
2011 has shown that the systematic, geosciences-driven
approach to the regional exploration permits leads to a
pipeline of exploration opportunities moving through from
anomalies, to drill targets, discovery of new prospects
and ultimately additional resources. At least two new gold
resources have been defined during 2011 at Gora and
Diadiako. Gora is progressing to a satellite pit mining
project, while Diadiako is expected to undergo further
exploration drilling in 2012. Two additional prospects are
advanced enough to undergo evaluation for their resource
potential in the first quarter of 2012. This systematic
approach has resulted in several discoveries and manage-
ment believes may in time lead to bigger discoveries on its
regional ground holdings.
tourokhoto
During the quarter ended December 31, 2011, an RC
program commenced at Tourokhoto which is designed
to systematically test the gold mineralized trends identi-
fied from the RAB drilling. The drilling to date identified a
substantial, gold mineralization system, which has potential
to host ore-grade shoots within it. This first pass drilling
program is designed to test for a large, near surface open-
pitable resource, drilling is about 60 percent complete
with most assays and interpretation pending.
In addition the positive RAB results at Tourokhoto-Marougou,
which was only a second order surface anomaly, demonstrate
the value in systematically screening coherent anomalies
in favourable geological settings. As a result, further RAB
testing of second and third order surface gold anomalies at
Tourokhoto is expected to continue in 2012.
diegoun north (“the donut”)
Drilling at Jam and Honey has identified in almost all
holes, wide zones of altered and gold mineralized intrusive
rocks. The results indicate large mineralizing hydrothermal
systems, within a complex structural setting. The first pass
RC drilling was oriented to test for mineralized structures
parallel to the regional North East trends. Recent work has
focused on testing North West oriented structures which
could control the ore-grade portions of the larger mineral-
ized system evident from the drilling to date. Drilling and
mapping in early 2012 is expected to focus on understand-
ing the ore-grade structural controls and orientations at Jam
and Honey, which is anticipated to lead to a breakthrough
in drill targeting on this large 4km by 7km prospect.
The Company plans to proceed to drill testing 40 targets
and prospects during 2012, with the view to identifying
additional resources. In parallel, pre-drilling field work is
expected to be carried out on at least 20 gold anomalous
areas on the Regional Land Package, all of which have
previously had little or no attention. Significant potential
remains and this work is expected to add to the list of
drill targets, thus adding to the pipeline of opportunities
throughout 2012. Resources are expected to be allocated
according to technical and operational priorities.
2011 AnnuAl RepoRt 16/
CASH FLOW
($’000)
Cash flow
Operating activities
Investing activities
Financing activities
Change in cash and cash equivalents during period
Cash and cash equivalents – beginning of period
Effect of exchange rates on holdings
Cash and cash equivalents – end of period (1)
(1) Cash and cash equivalents exclude restricted cash and cash held investments of longer than 90 days.
15 months ended
December 31, 2011
3,815
(113,522)
116,579
6,872
–
598
7,470
Net cash provided by operating activities during the fifteen
months ended December 31, 2011 of $3.8 million repre-
sents $187.1 million received from gold sales less produc-
tion costs of $145.2 million, $12 million of administration
expenses and $26.1 million in working capital.
Net cash used in investing activities for the fifteen months
period ended December 31, 2011 was $113.5 million
which was primarily due to repayment of a promissory note
to MDL of C$50 million offset by cash acquired and $76.4
million spent on capital expenditures.
SummAry OF quArterLy inFOrmAtiOn
Net cash provided by financing activities for the fifteen
months ended December 31, 2011 was $116.6 million
resulting from the issuance of 45.6 million shares for gross
proceeds of $135 million through the IPO of the Company
completed on December 7, 2010 partially offset by share
issuance costs related to the public offerings of $16.3 mil-
lion, drawdowns of $9.6 million from the Amended Mining
Fleet Lease Facility and the payments against the same
facility of $10.8 million.
2011
Operating results
Ore mined
Waste mined
Total mined
Ore processed
Gold produced
Gold sold
Average price received
Cash cost
Financial results ($’000)
Revenue
Profit/(Loss) for the period
Operating cash flow
Profit/(Loss) per share
q4
q3
q2
q1
Period from november 23, 2010
to December 31, 2011
(‘000t) 1,715
(‘000t) 4,736
(‘000t) 6,451
604
(‘000t)
(oz) 36,695
(oz) 34,665
($/oz) 1,482
902
($/oz sold)
1,008
5,085
6,093
582
27,082
27,574
1,174
1,156
759
5,538
6,297
650
33,388
35,407
1,083
879
491
6,460
6,951
608
34,296
39,490
1,199
655
51,519
12,550
6,548
0.04
38,487
47,534
32,462
(24,953)
(9,730) 10,698
(12,254) (10,071) 19,816
0.04
(0.04)
(0.10)
547
2,057
2,604
222
16,267
16,592
1,029
704
17,139
(4,414)
(224)
(0.04)
Revenue of $51.5 million for the three months ended
December 31, 2011 represents gold sales of 34,665 ounces
of gold, out of which 7,385 ounces were delivered into gold
hedge contracts at $846 per ounce and 27,280 ounces
were sold into the spot market at an average price of $1,654
per ounce resulting in an average realized price for the three
months ended December 31, 2011 of $1,482 per ounce.
Cost of sales for the quarter ended December 31, 2011
totalled $40.7 million consisting of mine production costs,
realized gains on oil hedge contracts, depreciation and
amortization, royalties, rehabilitation costs and inventory
movement costs.
Gold production for the three months ended December 31,
2011 was 36,695 ounces. While it was the highest quar-
terly production of calendar 2011, it was 18 percent lower
than plan due to a delay in accessing higher grade zones.
teranga gold corporation / management’s discussion & analysis
17/
Access to the higher grade zones scheduled for December
occurred later in the month than anticipated, resulting in
approximately 17,000 ounces of gold at 2.37 gpt being
stockpiled rather than processed before the end of 2011.
The high grade stockpiles are expected to be processed in
the first quarter of 2012.
Gold sold for the three months ended December 31, 2011
totalled 34,665 ounces at a total cash cost of $902 per
ounce sold. Total cash costs decreased by $254 per ounce
compared to the September quarter due an increase in
production by 9,600 ounces.
Net profit for the three months ended December 31, 2011
totalled $12.5 million or $0.04 per share largely due to
gold hedge unrealized gain, higher production and a higher
average realized gold price as a lower percentage of gold
sales were delivered into the hedge book compared to prior
quarters.
Capital expenditures for the three months ended December
31, 2011 totalled $27.3 million, primarily for the mill expan-
sion, mobile equipment and capitalized mine site exploration.
liqUiditY and caPital ResOURces
At December 31, 2011, the Company had cash, cash
equivalents and short-term investment including restricted
cash of $11 million. This cash balance is lower than budget
due to shortfall in December production as well as due
to timing difference of 10,500 ounces sold at the end of
the year for which cash of $17 million was received at the
beginning of January 2012. Management believes that the
cash and cash equivalents at December 31, 2011, together
with expected future cash flows from operations is suf-
ficient to support the Company’s liquidity requirements. To
provide additional financial flexibility, in December 2011,
the Company reached an agreement with Macquarie Bank
Limited to defer 28,000 ounces that were due for delivery
on February 17, 2012 until later in 2012. The deferral
of scheduled first quarter deliveries into hedge contracts
allows the Company to sell all of its first quarter gold pro-
duction at higher spot gold prices, allowing the Company to
rebuild its cash balance. Once the mill expansion is com-
plete, the production rate is expected to rise and cash cost
of production are expected to fall improving cash margins.
The improved cash margins combined with expected higher
production should allow the Company to increase its cash
balance through the year.
The Company’s total planned capital expenditures for
2012, with a focus on completion of the plant expansion
at the Sabodala mine site, capitalized exploration costs, as
well as construction of the new tailings disposal facility, are
expected to total $50 million.
The Company has counterparty risk relating to advances
provided to suppliers as well as to receivables from the
sale of gold bullions. The 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 Government of Canada. A minimal cash
amount is held with the Senegalese banks.
The Company strengthened its balance sheet during the
fifteen months ended December 31, 2011 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 2012, 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 the
ongoing exploration and development activities.
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, mar-
ket 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 Com-
pany’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
$826 per ounce. Deliveries into the hedge position to date
of 224,500 ounces have reduced the hedge balance to
174,500 ounces at December 31, 2011. The mark-to-
market at the reporting date spot price of $1,566 was
negative $129.6 million.
2011 AnnuAl RepoRt 18/
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, 2011, the remain-
ing 100,000 barrels were hedged with a mark-to-market
gain of $2.8 million at the reporting date spot price of
$99 per barrel.
cOntRactUal OBliGatiOns
and cOmmitments
Working capital Requirements
The Company’s working capital requirements primarily relate
to the mining costs of extracting ore from the Sabodala gold
mine and then the costs involved in processing the ore to
remove the gold, before the gold itself is sold.
As at December 31, 2011, the Company had the following
payments due on contractual obligations and commitments:
contractual Obligation and commitments
total
< 1 year
1-3 years 4-5 years
>5 years
Payments due By Period ($millions)
Mining Fleet Lease Facility (1)
Exploration commitments
Government of Senegal payments (2)
Plant expansion
Mining equipment supply contract (3)
total
24.4
5.6
4.8
21.4
5.0
61.2
16.8
5.6
4.8
21.4
5.0
53.6
7.6
–
–
–
7.6
–
–
–
–
–
–
–
–
–
–
(1) In 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). During the quarter ended December 31, 2011, the Company finalized the
expansion of the mobile equipment loan with Société Générale by an additional $12.8 million. The amended facility contains a quarterly repayment schedule conclud-
ing with the final payment on September 30, 2013. The facility is currently drawn down to $24.4 million.
(2) Comprises $4.0 million, to which an annual interest rate of 6.0 percent applies, payable to the Government of Senegal relating to the historical cost of acquiring the
mine license. The Company anticipates paying this amount along with the accrued interest within the next 3 months.
(3) In 2011, the Company entered into an equipment supply contract for the purchase of mining equipment to be used primarily for the development of the Gora deposit.
The purchase of this mining equipment is largely financed by expansion of the mobile equipment loan with Société Générale. See Note (1).
sabodala Operating commitments
RisK FactORs
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 percent 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 is payable for social development of
local authorities in the surrounding Tambacounda region
during the term of the Mining Concession.
$30,000 per year is payable for logistical support of the
territorial administration of the region from date of notifica-
tion of the Mining Concession.
$200,000 per year of production is payable for training
of Directorate of Mines and Geology officers and Mines
Ministry.
$4.0 million plus interest is payable to the Government of
Senegal pursuant to terms included in the Sabodala Mining
Licence at date of grant. The Company anticipates paying
this amount along with the accrued interest within the next
3 months.
Below are some risk factors that Teranga believes can have
a material effect on the profitability, future cash flow, earn-
ings, results of operations, stated reserves and financial
condition of the Company. If any event arising from these
risks occurs, the Company’s business, prospects, financial
condition, results of operations or cash flows could be
adversely affected, the trading price of Teranga’s common
shares could decline and all or part of any investment may
be lost. Additional risks and uncertainties not currently
known to the Company, or that are currently deemed im-
material, may also materially and adversely affect the Com-
pany’s business operations, prospects, financial condition,
results of operations or cash flows.
Financial Risks
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, exploration pro-
grams and the completion of the mill expansion program.
teranga gold corporation / management’s discussion & analysis
19/
Operating issues in the pit have resulted in an anticipated
shortfall of 20,000 ounces over the final quarter of 2011
and first quarter of 2012, which are expected to be mined
and processed during the second quarter of 2012. To make
up for the shortfall in production, the Company has elected
to defer its first quarter deliveries into its hedge contracts
until the second half of 2012 in order to sell all of the Com-
pany’s gold production at the higher spot price of gold. The
Company believes that the deferral of its hedge deliveries
in the first quarter of 2012 should ensure that its expected
cash flow from operations, along with its cash holdings is
sufficient to meet its first and second quarter 2012 obliga-
tions including the completion of the mill expansion. Once
the mill expansion is complete, scheduled for the end of
the first quarter 2012, higher production should help to
increase cash balances to ensure that the Company is able
to meet the balance of its obligations through 2012.
As at December 31, 2011, the Company had $11 million
in cash, cash equivalents, short-term investments and
restricted cash.
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 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, 2011 is
considered minimal. The oil hedge contracts are also with
a large institution. 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 institu-
tions that hold the Company’s cash. As at December 31,
2011, the Company’s cash and cash equivalents were held
by three major financial institutions as well as invested in
Canadian bonds.
Market Risk
Market risk represents the potential loss that can be
caused by a change in the market value of financial instru-
ments. The Company’s exposure to market risk is deter-
mined 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 manage-
ment policy the Company has entered into gold forward
sales contracts, and oil energy swaps to reduce exposure
to unpredictable market fluctuations. The gold forward
sale program undertaken is structured with the objective of
providing a minimum floor price for a portion of the Com-
pany’s gold sales, while the Company’s oil hedge contracts
are structured to retaining as much upside to the 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 US dollars and the Company’s
costs are incurred principally in US dollars and the CFA
Franc, the national currency of Senegal, which is pegged to
the Euro. The Company also incurs Canadian dollar and Euro
costs. The appreciation of non-US dollar currencies against
the US dollar can increase the cost of gold production and
capital expenditures in US dollar terms. The Company also
holds cash and cash equivalents that are denominated in
non-US dollar currencies that are subject to currency risk.
Accounts receivable and other current and long-term assets
are denominated in non-US dollars.
The Company is exposed to currency risk through financial
assets and liabilities denominated in currencies other
than US dollars at December 31, 2011. See Note 33(d)
to the Audited Annual 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, treasury bills and bonds and
external borrowings. See Note 33(e) to the Audited Annual
Consolidated Financial Statements of Teranga.
The Company has elected not to actively manage its expo-
sure to interest rate risk at this time.
2011 AnnuAl RepoRt 20/
Macquarie Bank Limited Hedge Commitment
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.
The costs in relation to Teranga’s production, development
and exploration activities vary depending on the market
prices of certain mining consumables, including light
and 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.
Société Générale Mining Equipment Lease Facility
In 2010, SGML (Capital) Limited entered into an amended
agreement with Société Générale London to expand the
facility to allow for the purchase of additional mining equip-
ment required for the mill expansion. An amended facility
was concluded with a new limit of $27.8 million. Quarterly
payments have reduced the balance outstanding to $14.5
million at December 31, 2011.
In 2011 the facility was further expanded by $12.8 million
to acquire mobile equipment to be used primarily for the
development of the Gora deposit. The facility is currently
drawn down to $24.4 million.
The facility, including the expanded amount, contains a
quarterly repayment schedule concluding with the final
payment on September 30, 2013 with interest calculated
using LIBOR plus a margin.
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 numer-
ous 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
US dollar and foreign currencies, global and regional
supply and demand, and the political and economic condi-
tions of the world’s major gold-producing countries. A 10
percent increase or decrease in the price of gold would
result in approximately a $17.1 million increase or decrease
in revenue based on the expectations and assumptions it
used in the 2012 outlook.
At present, the Company has 174,500 ounces of gold
forward sales deliverable through August 2013 at an aver-
age price of $826 per ounce. The mark-to-market at the
reporting date spot price of $1,566 was negative $129.6
million. A 10 percent increase or decrease in the price of
gold would result in approximately a $27 million increase
or decrease in gold hedge unrealized gains or losses.
Risks Relating to the Business and Operations
Loss of Entire Investment
An investment in the shares of Teranga (“Shares”) is
speculative and may result in the loss of an investor’s entire
investment. Only potential investors who are experienced in
high risk investments and who can afford to lose their entire
investment should consider an investment in the Company.
Strategic Acquisitions, Investments
and/or Divestitures
Teranga may consider making strategic acquisitions,
divestitures or investments as a means of pursuing its
corporate strategy. It is possible that Teranga may not
identify suitable opportunities, or if it does identify suit-
able opportunities, that it may not complete those transac-
tions on terms commercially acceptable to Teranga or at
all. The inability to identify suitable acquisition targets or
divestiture opportunities or investments or the inability to
complete such transactions could materially and adversely
affect Teranga’s competitiveness and growth prospects.
In the event Teranga successfully completes an acquisi-
tion or investment, it could face difficulties managing the
investment or integrating the acquisition into its opera-
tions. There can be no assurance that Teranga will be able
to achieve the strategic purpose of such an acquisition or
investment. In the event Teranga successfully completes
a divestiture, there can be no assurance that Teranga will
obtain favourable consideration for such divestiture. These
difficulties could disrupt Teranga’s ongoing business,
distract its management and employees, and increase
its expenses, any of which could materially and adversely
affect Teranga’s business and results of operations.
Profitability of Teranga
Teranga’s ability to operate profitably depends upon a num-
ber of factors, some of which are beyond Teranga’s direct
control. These factors include Teranga’s ability to develop
its mining projects and commercialize mineral reserves,
its ability to control its costs, the demand and price for
gold and general economic conditions. If Teranga is unable
to generate profits in the future, the market price of the
Shares could fall.
teranga gold corporation / management’s discussion & analysis 21/
Exploration, Development and Mining Risks
Teranga’s business operations are subject to risks and
hazards inherent in the mining industry. The explora-
tion for and the development of mineral deposits involves
significant risks, including environmental hazards, industrial
accidents, equipment failure, import/customs delays, short-
age or delays in installing and commissioning plant and
equipment, metallurgical and other processing problems,
seismic activity, unusual or unexpected rock formations,
wall failure, cave ins or slides, burst dam banks, flooding,
fires, interruption to or the increase in costs of services
(such as water, fuel (particularly for heavy fuel oil) or
transport) and interruption due to inclement or hazardous
weather conditions. These risks could result in damage to,
or destruction of, mineral properties, production and power
facilities or other properties, for example, dams, personal
injury or death, environmental damage, pollution, delays in
mining, increased production costs, monetary losses and
possible legal liability.
Whether income will result from projects undergoing explo-
ration programs depends on the successful establishment
of mining operations. Factors including, but not limited to,
government regulations (such as those governing prices,
taxes, royalties, land tenure, land use and environmental
protection), costs, actual mineralization, size and grade of
mineral deposits, consistency and reliability of ore grades
and commodity prices may affect successful project devel-
opment. In addition, few properties that are explored are
ultimately developed into producing mines.
Mineral properties in remote locations may have limited
access during seasonal weather patterns which in turn can
severely limit mining operations. Successful mining opera-
tions will be dependent on the availability of processing and
refining facilities and secure transportation infrastructure at
economic tariff rates over which Teranga may have limited
or no control.
The Company is currently involved in joint ventures in which
the ongoing operations and certain fundamental decisions
require approval of the joint venture partners. The voting
decisions of such partners are outside the control of the
Company and may have a materially adverse impact on the
Company’s business operations or financial position.
Reliability of Resource and Reserve Estimates
Teranga’s mineral resources and mineral reserves described
in the Sabodala Technical Report are estimates based on a
number of assumptions. Any adverse changes could require
Teranga to lower its mineral resource and mineral reserve
estimates. There is no certainty that any of the mineral
resources or mineral reserves described in the Sabodala
Technical Report will be realized or that the anticipated ton-
nages and grades will be achieved, that the indicated level
of recovery will be realized or that reserves can be mined or
processed profitably. Until a deposit is actually mined and
processed, the quantity and grades of mineral resources
and mineral reserves must be considered as estimates
only. Valid estimates made at a given time may signifi-
cantly change when new information becomes available. In
addition, the quantity and/or economic viability of mineral
resources or mineral reserves may vary depending on,
among other things, metal prices, grades, production costs,
stripping ratios, recovery rates, permit regulations and
requirements, environmental factors, unforeseen technical
difficulties, unusual or unexpected geological formations
and work interruptions. Any material change in the quantity
of mineral resources or mineral reserves, grade or stripping
ratio may affect the economic viability of Teranga’s proper-
ties or any project undertaken by Teranga. In addition, there
can be no assurance that mineral or other metal recoveries
in small scale laboratory tests will be duplicated in a larger
scale test under on-site conditions or during production and
the volume and grade of reserves mined and processed and
recovery rates may not be the same as currently anticipat-
ed. There can also be no assurance that any discoveries of
new reserves will be made.
Fluctuations in the prices of gold and other minerals,
results of drilling, metallurgical testing and production
and the evaluation of studies, reports and plans subse-
quent to the date of any estimate may require revision of
such estimate. Any material reductions in estimates of
mineral resources or mineral reserves could have a mate-
rial adverse effect on Teranga’s results of operations and
financial condition.
Illegal Mining on the ML and Regional Land Package
Illegal mining is becoming more widespread in Senegal.
Illegal miners have and may continue to trespass on
Teranga’s properties and engage in very dangerous prac-
tices including the use of mercury and dynamite in their
operations, without any government regulation or over-
sight. Teranga is unable to continuously monitor its entire
Regional Land Package. The presence of illegal miners
could also lead to project delays and disputes regarding
the development or operation of commercial gold deposits,
including disputes with Senegalese governmental authori-
ties regarding reporting of resources and mine production.
2011 AnnuAl RepoRt 22/
The illegal activities of these miners could cause environ-
mental damage (including damage from the use of mercury
in recovery practices by certain of these artisanal miners)
or other damage to Teranga’s properties, as well as personal
injury or death, for which Teranga could potentially be held
responsible, all of which could have an adverse impact on
Teranga’s further cash flows, earnings, results of operations
and financial condition.
Teranga May Not Meet Key Production or
Other Cost Estimates
A decrease in the amount of or a change in the timing of
the mineral production outlook for Teranga may impact the
amount and timing of Teranga’s cash flow from operations.
The actual impact of such a decrease of Teranga’s cash
flow from operations would depend on the timing of any
changes in production and on actual prices and costs. Any
change in the timing of these projected cash flows that
would occur due to production shortfalls or labour disrup-
tions would, in turn, result in delays in receipt of such cash
flows and in using such cash to, as applicable, reduce debt
levels and fund operating and exploration activities, which
may require additional borrowings to fund capital expendi-
tures in the future.
The level of production and capital and operating cost
estimates which are used for determining and obtaining
financing and other purposes are based on certain assump-
tions and are inherently subject to significant uncertainties.
It is very likely that actual results for Teranga’s projects
will differ from its current estimates and assumptions, and
these differences may be material. In addition, experience
from actual mining or processing operations may identify
new or unexpected conditions that could reduce production
below, and/or increase capital and/or operating costs above,
the current estimates. If actual results are less favour-
able than Teranga currently estimates, Teranga’s business,
results of operations, financial condition and liquidity could
be materially adversely impacted.
Input Price Risks
Any increase in the price of production inputs, including
labour, fuel, mine consumables or other inputs could ma-
terially and adversely affect Teranga’s business and results
of operations. Input costs can be affected by changes in
factors including market conditions, government policies,
exchange rates and inflation rates, which are unpredict-
able and outside the control of Teranga. In particular, the
cost of fuel, which is required to generate power, and other
inputs constitutes a significant part of Teranga’s operating
expenses. Unanticipated increases in the price of these or
other inputs could materially and adversely affect Teranga’s
business and results of operations.
Current Global Financial Conditions
Events in global financial markets over the past three years
have had a profound impact on the global economy. Many
industries, including the mining industry, are affected by
these market conditions. Current global financial conditions
have been subject to increased volatility and numerous
commercial enterprises have either gone into bankruptcy or
have had to be rescued by governmental authorities. Some
of the key effects of the current financial market turmoil
include higher sovereign debt levels, contraction in credit
markets, devaluations and high volatility in global equity,
commodity, foreign exchange and precious metal markets,
and a lack of market liquidity. Access to public financing
has been negatively affected. A continued or worsened
sovereign debt crisis in Europe, slowdown in the financial
markets or other economic conditions, including, but not
limited to, consumer spending, employment rates, business
conditions, inflation, fuel and energy costs, consumer debt
levels, lack of available credit, the state of the financial
markets, interest rates and tax rates may adversely affect
Teranga’s growth and profitability. Specifically the sovereign
debt crisis in Europe could affect the cost and availability
of financing and Teranga’s overall liquidity, the volatility
of mineral prices, gold in particular, impacts Teranga’s
revenues, profits and cash flow, volatile energy, commod-
ity and consumables prices and currency exchange rates
impact Teranga’s productions costs; and the devaluation
and volatility of global stock markets impacts the valuation
of Teranga’s equity securities. In addition, recent market
events in Europe surrounding the sovereign debt crisis
and its impact on the banking system have significantly
raised the risk of counterparty default. Teranga is subject to
counterparty risk and may be impacted in the event that a
counterparty, including suppliers and joint venture partners,
becomes insolvent. If these increased levels of volatility
and market turmoil continue, Teranga’s operations may be
adversely affected and the trading price of the securities of
Teranga may be adversely affected.
Financing Risks
Mining operations, exploration and development involve
significant financial risk and capital investment. The opera-
tions and expansion plans for Teranga may also result in in-
creases in capital expenditures and commitments. Teranga
may require additional funding to expand its business and
may require additional capital in the future to, among other
things, complete the expansion of the Sabodala plant and
no assurance can be given that such capital will be avail-
able at all or available on terms acceptable to Teranga.
Teranga may be required to seek funding from third parties
if internally generated cash resources and available credit
facilities are insufficient to finance these activities. In the
teranga gold corporation / management’s discussion & analysis 23/
event that Teranga were unable to obtain adequate financ-
ing on acceptable terms, or at all, to satisfy its operating,
development and expansion plans, its business and results
of operations may be materially and adversely affected.
The success and the pricing of any such capital rais-
ing and/or debt financing will be dependent upon the
prevailing market conditions at that time, the availability
of funds from lenders and other factors relating to the
Sabodala mine. If additional capital is raised by an issue of
securities, this may have the effect of diluting sharehold-
ers’ interests in Teranga. Any debt financing, if available,
may involve financial or other covenants which may limit
Teranga’s operations. The principal amounts under any
debt financing arrangements entered into by Teranga may
become immediately due and payable if Teranga fails to
meet certain restrictive covenants. If Teranga cannot obtain
such additional capital, it may not be able to complete the
expansion of the Sabodala mill which may adversely affect
its business, operating results and financial condition.
There can be no assurance that funding will be available
to the Company or available on terms that do not adversely
affect the projected economic return from the expansion of
the Sabodala plant. If funding is obtained through the issue
of additional equity, shareholders’ interest in the Company
may be diluted.
Terms of Existing Debt Financing
Failure by Teranga, SGO or Sabodala Gold (Mauritius)
Limited to comply with their covenants contained in the
finance documents relating to the Project Finance Facility
and the gold and oil hedging arrangements with Macquarie
Bank Limited may constitute an event of default under such
finance documents. The occurrence of an event of default,
or the triggering of a review event, under the finance docu-
ments relating to the Project Finance Facility and the gold
and oil hedging arrangements with Macquarie Bank Limited
could have material adverse consequences to Teranga, SGO
and Sabodala Gold (Mauritius) Limited, including: resulting
in the requirement that Teranga, SGO and Sabodala Gold
(Mauritius) Limited immediate restructuring of SGO’s gold
and oil hedging arrangements with Macquarie Bank Limited
on terms less favourable to SGO; the termination of SGO’s
gold and oil hedging arrangements with Macquarie Bank
Limited, potentially crystallizing termination payments to
Macquarie Bank Limited calculated according to prevail-
ing market rates; the enforcement by Macquarie Bank
Limited of its security interests held over Teranga’s shares
in Sabodala Gold (Mauritius) Limited and any SGO Creditor
and over the assets of Sabodala Gold (Mauritius) Limited
and SGO, or other such consequences, any of which could
have material adverse effect on the business, operating
results, financial position and future ability to raise capital
by Teranga, Sabodala Gold (Mauritius) Limited or SGO.
Failure by Teranga, SGO or SGML (Capital) Limited to
comply with their covenants contained in the finance
documents relating to the Finance Lease may constitute
an event of default under such finance documents. The
occurrence of an event of default, or the triggering of a
review event, under the finance documents relating to the
Finance Lease could have material adverse consequences
to Teranga, SGO and SGML (Capital) Limited, includ-
ing: resulting in the requirement that Teranga, SGO and
Sabodala Gold (Mauritius) Limited immediately repay all
outstanding amounts under such documents; the making
of a demand under the guarantee granted to Société Gé-
nérale London Branch by SGO; the enforcement by Société
Générale London Branch of its security interests held over
Teranga’s shares in SGML (Capital) Limited and over the
assets of SGML (Capital) Limited, or other such conse-
quences, any of which could have material adverse effect
on the business, operating results, financial position and
future ability to raise capital by Teranga, SGO and SGML
(Capital) Limited.
Tax Risk
Teranga may have exposure to greater than anticipated
tax liabilities. Teranga is subject to income taxes and
non-income taxes in a variety of jurisdictions and its tax
structure is subject to review by both domestic and foreign
taxation authorities. The determination of its tax structure
has required and continues to require significant judgement
and there are transactions and determinations where the
ultimate tax result is uncertain. While management does
not believe that there is a significant risk to Teranga’s tax
structure there can be no assurance that taxation authori-
ties will not seek to challenge the structure in the future.
Teranga’s Dependence on the Sabodala Project
While Teranga may invest in additional mining and explora-
tion projects in the future, the Sabodala gold mine is likely
to be the Company’s only producing mining project for the
foreseeable future, thereby providing substantially all of the
Company’s operating revenue and cash flows. Consequent-
ly, a delay or difficulty encountered in the operations of the
Sabodala gold mine could materially and adversely affect
the Company’s financial condition and financial sustain-
ability. Any adverse changes or developments affecting
these projects, such as, but not limited to, the Company’s
inability to successfully complete any of the projects, work
programs or expansions, obtain financing on commercially
suitable terms, hire suitable personnel and mining contrac-
tors, may have a material adverse effect on the Company’s
financial performance and results of operations.
2011 AnnuAl RepoRt 24/
In addition, Teranga’s business and results of operation
could be materially and adversely affected by any events
which cause the Sabodala mine to operate at less than
optimal capacity, including among other things, equipment
failure or shortages, adverse weather, serious environmental
and safety issues, any permitting or licensing issues and any
failure of the mine to produce expected amounts of gold.
Insurance and Uninsured Risks
The business of Teranga is subject to a number of risks and
hazards generally, including adverse environmental condi-
tions and pollution, industrial accidents, labour disputes,
unusual or unexpected geological conditions, ground or
slope failures, cave-ins, changes in the regulatory environ-
ment and natural phenomena such as inclement weather
conditions, floods, earthquakes and dust storms. Such
occurrences could result in damage to mineral properties
or production facilities, personal injury or death, environ-
mental damage to properties of Teranga or others, delays in
mining, monetary losses and possible legal liability.
Although Teranga maintains insurance to protect against
certain risks in such amounts as it considers to be reason-
able, its insurance may not cover all the potential risks
associated with its operations and insurance coverage may
not continue to be available or may not be adequate to cov-
er any resulting liability. It is not always possible to obtain
insurance against all such risks and Teranga may decide not
to insure against certain risks because of high premiums
or other reasons. Moreover, insurance against risks such
as environmental pollution or other hazards as a result of
exploration and production is not generally available to
Teranga or to other companies in the mining industry on
acceptable terms. Losses from these events may cause
Teranga to incur significant costs that could have a material
adverse effect upon its financial performance and results of
operations or otherwise affect its insurability and reputation
in the market.
If Teranga incurs losses not covered by its insurance poli-
cies, such losses may adversely affect its business, operat-
ing results and financial condition.
Litigation
Teranga is not currently subject to litigation, but could
become involved in disputes with other parties in the future
which may result in litigation. The results of litigation can-
not be predicted with certainty. If Teranga were unable to
resolve such disputes favourably, the resultant litigation
could have a material adverse impact on Teranga’s financial
performance, cash flow and results of operations.
Dependence on Key Personnel
Teranga’s success depends to a significant extent upon its
ability to attract, retain and train key management person-
nel, both in Canada and in Senegal, as well as other man-
agement and technical personnel (including those employed
on a contractual basis). If Teranga is not successful in
retaining or attracting such personnel, Teranga’s business
may be adversely affected. The loss of the services of any
of Teranga’s key management personnel could materially
and adversely affect Teranga’s business and results of
operations.
In addition, the recruiting of qualified personnel is critical
to Teranga’s success. As Teranga’s business grows, it will
require additional key financial, administrative, mining,
processing and exploration personnel as well as additional
staff for operations. While Teranga believes that it will be
successful in attracting and retaining qualified personnel,
there can be no assurance of such success. If Teranga is
not successful in recruiting and training such personnel,
it could materially and adversely affect Teranga’s business
and results of operations.
Currency Risk
Teranga’s expected future revenue, if any, will be in United
States dollars and while most of its expenditures are in
United States dollars a significant component is also in
the local currency of Senegal. Also, future capital raised
by Teranga from public offerings of securities may be in
Canadian or Australian dollars. As a result of the use of
these different currencies, Teranga is subject to the risk
of foreign currency fluctuations, which are affected by a
number of factors that are beyond the control of Teranga.
These factors include economic conditions in the relevant
country and elsewhere and the outlook for interest rates,
inflation and other economic factors. Foreign currency fluc-
tuations may materially affect Teranga’s financial position
and operating results. Currently, Teranga has not hedged
against fluctuations in exchange rates, however, it may do
so at a later date.
Inability to Enforce its Legal Rights
In the event of a dispute arising at Teranga’s Senega-
lese operations, Teranga may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of courts in
Canada. Teranga may also be hindered or prevented from
enforcing its rights with respect to a governmental entity
or instrumentality because of the doctrine of sovereign im-
munity. The dispute provisions of Sabodala Mining Licence
and stipulate that any dispute between the parties thereto
is to be submitted to international arbitration. However,
teranga gold corporation / management’s discussion & analysis 25/
there can be no assurance that a particular governmental
entity or instrumentality will either comply with the provi-
sions of these or any other agreements or voluntarily submit
to arbitration. Teranga’s inability to enforce its rights could
have an adverse effect on its future cash flows, earnings,
results of operations and financial condition.
Derivative Instrument Risk
Teranga has hedging arrangements in place by way of gold
forward contracts and oil swaps to manage risks associated
with the prices for gold and oil. The use of such instru-
ments involves certain inherent risks including credit risk,
market liquidity risk and unrealized mark-to-market risk.
Currently, Teranga does not have any other hedging agree-
ments in place but may enter into additional contracts from
time to time. While hedging activities may protect Teranga
in certain circumstances, they may also cause it to be un-
able to take advantage of fluctuating market prices, and no
assurances are given as to the effectiveness of Teranga’s
current or future hedging policies.
SGO currently has significant gold hedging in place at pric-
es significantly below the current market price and this may
result, depending on the future price of gold, in significant
changes to the projected financial returns of Teranga.
No Dividends
Teranga has paid no dividends on its Shares to date. Pay-
ment of any future dividends will be at the discretion of
the Company’s board of directors after taking into account
many factors, including, but not limited to, Teranga’s
operating results, financial condition and current and an-
ticipated cash needs. At this time however, all of Teranga’s
available funds are expected to be invested to finance the
growth of Teranga’s business and therefore investors cannot
expect and should not anticipate receiving a dividend on
the Common Shares in the foreseeable future.
Repatriation of Earnings
There is no assurance that the Government of Senegal or
any other foreign country in which Teranga may operate in
the future will not impose restrictions on the repatriation of
earnings to foreign entities.
Operating Loss
The Company currently has an operating loss and no assur-
ance is given that additional losses will not be incurred in
the future or that the Company will be profitable.
Stock Exchange Prices
The market price of a publicly traded stock is affected
by many variables, some of which are not directly related
to the success of Teranga. In recent years, the securities
markets have experienced a high level of price and volume
volatility, and the market price of securities of many compa-
nies, particularly those considered to be junior companies,
has experienced wide fluctuations which have not necessar-
ily been related to the operating performance, underlying
asset values or prospects of such companies. There can be
no assurance that such fluctuations will not affect the price
of Teranga’s securities in the future.
Market for Teranga’s Securities
There can be no assurance that an active, liquid market
for Teranga’s securities will be maintained. Holders of
Teranga’s securities may be unable to sell their invest-
ments on satisfactory terms. In addition, the market price
of the securities of Teranga at any given point in time
may not accurately reflect the long-term value of Teranga.
Furthermore, responding to any events or circumstances
resulting from the risk factors described herein could
result in substantial costs and divert management’s atten-
tion and resources.
Other factors unrelated to the performance of Teranga that
may have an effect on the price and liquidity of Teranga’s
securities include, among other things: the extent of analyst
coverage of Teranga’s securities, the trading volume and
general market interest in Teranga’s securities, the size
of Teranga’s public float and/or any event resulting in a
de-listing of Teranga’s securities.
Potential Conflicts of Interest
Certain directors of Teranga are, and may continue to be,
involved in the mining and mineral exploration industry
through their direct and indirect participation in corpora-
tions, partnerships or joint ventures which are potential
competitors of Teranga. Situations may arise in connection
with potential acquisitions or investments where the other
interests of these directors may conflict with the interests
of Teranga. Directors of Teranga with conflicts of interest
will be subject to and will follow the procedures set out in
applicable corporate and securities legislation, regulations,
rules and policies.
Effecting Service of Process
Substantially all of the assets of Teranga and certain of its
officers and experts named herein are located outside of
Canada. It may not be possible for investors to effect ser-
vice of process within Canada upon the officers and
2011 AnnuAl RepoRt 26/
experts named herein. It may also not be possible to
enforce against Teranga, certain of its officers, and certain
experts named herein, judgements obtained in Canadian
courts predicated upon the civil liability provisions of ap-
plicable securities laws in Canada.
Influence of Joint Venture Partners
Exploration, development and mining projects are often
conducted through joint ventures which may require the
unanimous approval of the parties to the joint venture or
their representatives for certain fundamental decisions re-
lating to the governance and operations of the joint venture.
This means that a party may have a veto right, or similar
power, with respect to such decisions which could lead to a
deadlock and negatively impact or limit the business opera-
tions or financial position of Teranga in the future.
Exemptions from Rules of the Australian Securities
and Investment Commission (ASIC)
ASX Listing Rules and the Australian Corporations
Act 2001 (Cth)
Non-Canadian residents who hold Teranga common shares
(directly or indirectly through CDIs) may not be aware that
Canadian corporate and securities laws are different from
those in Australia. Teranga complies with Canadian securi-
ties laws, corporate governance guidelines and disclosure
standards that apply to Canadian companies listed on TSX.
In addition to these Canadian requirements, Teranga must
also comply with the ASX Listing Rules (Listing Rules) and
the Australian Corporations Act 2001 (Cth) (Corporations
Act). Circumstances exist where Teranga is exempt from
Listing Rule and Corporations Act requirements due to its
compliance with the TSX, Canadian securities laws and
corporate governance requirements. Teranga may from time
to time seek additional relief from Listing Rule and Corpora-
tions Act requirements, however there is no guarantee that
such applications for relief will be received in which case
compliance will be necessary.
Risks Relating to the Industry
Fluctuations in Metal Prices
The price of gold and other metals and minerals fluctuates
widely and is affected by numerous factors beyond the
control of Teranga, including, but not limited to, industrial
and retail supply and demand, exchange rates, inflation
rates, price and availability of substitutes, actions taken by
governments, changes in global economies, confidence in
the global monetary system, forward sales of metals by pro-
ducers and speculators as well as other global or regional
political, social or economic events. The supply of metals
consists of a combination of new mine production and
existing stocks held by governments, producers, speculators
and consumers. Future production from Teranga’s mining
properties, including the Sabodala mine, is dependent upon
the price of gold and other metals and minerals being ad-
equate to make these properties economic. Future serious
price declines in the market value of gold and other metals
and minerals could cause continued development of, and
eventually commercial production from, the Sabodala mine
and Teranga’s other properties to be rendered uneconomic,
thereby forcing Teranga to discontinue production or devel-
opment or to lose its interest in or sell, some of its proper-
ties. There is no assurance, even as commercial quantities
of gold are produced, that Teranga will be able to profitably
market gold.
In addition to adversely affecting the reserve estimates of
Teranga and its financial condition, declining commodity
prices can impact operations by requiring a reassessment
of the feasibility of a particular project. Such a reassess-
ment may be the result of a management decision or may
be required under financing arrangements related to a
particular project. Even if a project is ultimately determined
to be economically viable, the need to conduct such a reas-
sessment may cause substantial delays or may interrupt
operations until the reassessment can be completed.
Mining Operations
By its nature, the business of mineral exploration, project
development, mining and processing, contains elements of
significant risks and hazards. The continuous success of
Teranga’s business is dependent on many factors including,
but not limited to:
• discovery and/or acquisition of new ore reserves;
• securing and maintaining title to tenements and obtaining
necessary consent for exploration and mining;
• successful design and construction of mining and pro-
cessing facilities;
• successful commissioning and operating of mining and
processing facilities; and
• the performance of the technology incorporated into the
processing facility.
The Sabodala mine is subject to technical risk in that it
may not perform as designed. Increased development or
expansion costs, lower output or higher operating costs
may all combine to make the Sabodala mine less profitable
than that expected at the time of the development decision.
This would have a negative impact on Teranga’s expected
cash flow. No assurance can be given that Teranga would
teranga gold corporation / management’s discussion & analysis 27/
be adequately compensated by third party project design,
construction and supply companies in the event of equip-
ment failure or that the project does not meet its expected
design specifications.
Critical Supplies
Timely and cost effective execution of Teranga’s min-
ing operations at the Sabodala mine is dependent on the
adequate and timely supply of water, fuel, chemicals and
other critical supplies.
If Teranga is unable to procure the requisite quantities of
water, fuel or other inputs in time and at commercially ac-
ceptable prices or if there are significant disruptions in the
supply of fuel, water or other inputs to the Sabodala mine,
the performance of Teranga’s business and results of opera-
tions could be materially and adversely affected.
Environmental Risks and Regulations
All phases of Teranga’s operations are subject to environ-
mental regulation in the various jurisdictions in which it op-
erates. These regulations mandate, among other things, the
maintenance of air and water quality standards and land
reclamation. They also set limitations on the generation,
transportation, storage and disposal of solid and hazardous
waste. Environmental legislation in the various jurisdic-
tions in Teranga operates is evolving in a manner which
will require stricter standards and enforcement, increased
fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects, and a
heightened degree of responsibility for companies and their
officers, directors and employees. There is no assurance
that future changes in environmental regulation, if any, will
not adversely affect Teranga’s operations. Environmental
hazards may exist on the properties on which Teranga holds
interests which are unknown to Teranga at present and
which have been caused by previous or existing owners or
operators of the properties.
Government approvals and permits are currently and may
in the future be required in connection with the operations
of Teranga. To the extent such approvals are required and
not obtained, Teranga may be curtailed or prohibited from
continuing its mining operations or from proceeding with
planned exploration or development of mineral properties.
Failure to comply with applicable laws, regulations and
permitting requirements may result in enforcement ac-
tions thereunder, including orders issued by regulatory
or judicial authorities causing operations to cease or be
curtailed, and may include corrective measures requiring
capital expenditures, installation of additional equipment or
remedial actions. Parties engaged in mining operations or
in the exploration or development of mineral properties may
be required to compensate those suffering loss or damage
by reason of mining activities and civil or criminal fines or
penalties may be imposed for violations of applicable laws
or regulations.
Amendments to current laws, regulations and permits
governing operations and activities of mining and explora-
tion companies, or more stringent implementation thereof,
could have a material adverse impact on Teranga and cause
increases in exploration expenses, capital expenditures or
production costs, or reduction in levels of production at
producing properties, or require abandonment or delays in
development of new mining properties.
Licenses and Permits
The current and future operations of Teranga require
permits from various governmental authorities and such
operations are and will be subject to laws and regulations
governing prospecting, development, mining, production,
exports, taxes, labour standards, occupational health,
waste disposal, toxic substances, land use, surface rights,
environmental protection, safety and other matters, and
dependent upon the grant, or as the case may be, the
maintenance of appropriate licenses, concessions, leases,
permits and regulatory consents which may be withdrawn or
made subject to limitations. The maintaining of tenements,
obtaining renewals, or getting tenements granted, often
depends on Teranga being successful in obtaining required
statutory approvals for its proposed activities and that the
licenses, concessions, leases, permits or consents it holds
will be renewed as and when required. There is no assur-
ance that such renewals will be given as a matter of course
and there is no assurance that new conditions will not be
imposed in connection therewith.
Companies engaged in the development and operation of
mines and related facilities generally experience increased
costs, and delays in production and other schedules
as a result of the need to comply with applicable laws,
regulations and permits. There can be no assurance that
approvals and permits required to commence production
on its properties will be obtained. Additional permits and
studies, which may include environmental impact studies
conducted before permits can be obtained, may be neces-
sary prior to operation of the properties in which Teranga
has interests and there can be no assurance that Teranga
will be able to obtain or maintain all necessary permits that
may be required to commence construction, development
or operation of mining facilities at these properties on terms
which enable operations to be conducted at economically
justifiable costs.
2011 AnnuAl RepoRt 28/
Teranga’s producing operations and exploration activities
in Senegal are subject to various state laws governing land
use, surface rights, the protection of the environment,
prospecting, development, production, exports, taxes,
labour standards, occupational health, waste disposal, toxic
substances, workplace safety and other matters. Such oper-
ations and exploration activities are also subject to substan-
tial regulation under these laws by governmental agencies
and may require that Teranga obtain permits from various
governmental agencies. Teranga believes it is in substan-
tial compliance with all material laws and regulations that
currently apply to its activities. There can be no assurance,
however, that all permits Teranga may require for construc-
tion of mining facilities and conduct of mining operations
will be obtainable on reasonable terms or that such laws
and regulations would not have a material adverse effect on
any mining project Teranga might undertake.
Title to Properties
There can be no assurances that the interest of Teranga in
its properties is free from title defects or that the material
contracts between Teranga and (the entities owned or con-
trolled by) the relevant governments will not be unilaterally
altered or revoked. Teranga has investigated its rights as
set forth herein and believes that these rights are in good
standing. There is no assurance, however, that such rights
and title interests will not be revoked or significantly altered
to the detriment of Teranga. There can be no assurances
that Teranga’s rights and title interests will not be chal-
lenged or impugned by third parties.
Competition
Teranga competes with other companies, some which have
greater financial and other resources than Teranga and, as
a result, may be in a better position to compete for future
business opportunities. Teranga competes with other min-
ing companies for the acquisition of mineral claims, leases
and other mineral interests as well as for the recruitment
and retention of qualified employees and other personnel.
There can be no assurance that Teranga can compete ef-
fectively with these companies.
Closure Costs
The key risks for mine closure include, without limitation,
the (i) long-term management of permanent engineered
structures and acid rock drainage; (ii) achievement of
environmental closure standards; (iii) orderly retrench-
ment of employees and contractors; and (iv) relinquish-
ment of the site with associate permanent structures and
community development infrastructure and programs to
new owners. The successful completion of these tasks is
dependent on the ability to successfully implement negoti-
ated agreements with the relevant government, community
and employees. The consequences of a difficult closure
range from increased closure costs and handover delays to
ongoing environmental impacts and corporate reputation
damage if desired outcomes cannot be achieved, which
could materially and adversely affect Teranga’s business
and results of operations.
Exploration Risk
Teranga is seeking mineral deposits on exploration projects
where there are not yet established commercial quantities.
There can be no assurance that economic concentrations of
minerals will be determined to exist on Teranga’s property
holdings within existing investors’ investment horizons or at
all. The failure to establish such economic concentrations
could have a material adverse outcome on Teranga and its
securities. Teranga’s planned programs and budgets for
exploration work are subject to revision at any time to take
into account results to date. The revision, reduction or cur-
tailment of exploration programs and budgets could have a
material adverse outcome on Teranga and its securities.
Opposition of Business Activities
In recent years, individuals, communities, governmental
agencies, courts and non-governmental organizations have
become more vocal and active with respect to mining
activities and business activities of foreign entities. These
parties may take actions such as road blockades, applica-
tions for injunctions seeking working stoppages, refusals
to grant access to lands or sell properties on commercially
viable terms, lawsuits for damages, issuances of unfavour-
able laws and regulations, and rulings contrary to Teranga’s
interests. These actions can occur in response not only to
current activities but also to decades-old mining activities
by prior owners of subject mining properties. Opposition to
business activities of Teranga are beyond its control and
may result in the inability to obtain or a loss of rights to
explore, develop and mine mineral properties, substantial
delays, and increased costs.
Risks Relating to senegal
Political Risks
Teranga’s projects are located in Senegal in West Africa.
Its tenure over its property rights and the conditions under
which it operates, both during and after the exploration
stage, are subject to the jurisdiction of the Government of
Senegal and in some cases of political subdivisions within
that country. The laws and regulations governing Teranga’s
tenure and operations are subject to alteration, and an
teranga gold corporation / management’s discussion & analysis 29/
adverse alteration to those laws and regulations could
have a material adverse effect on Teranga. In addition, the
exposure of Teranga, its projects and its operations to politi-
cal risk comprises part of the evaluations, perceptions and
sentiments of investors. An adverse change in investors’
tolerance of political risk could have a material adverse af-
fect on Teranga and its securities.
Foreign Operations Risks
The operations of Teranga are currently conducted in West
Africa and, as such, are exposed to various levels of politi-
cal, economic and other natural and man-made risks and
uncertainties, over which Teranga has no or limited control.
These risks and uncertainties include, but are not limited to,
economic, social or political instability, terrorism, hostage
taking, military repression, labour unrest, the risks of war
or other forms of civil unrest, expropriation and nationaliza-
tion, illegal mining, renegotiation, nullification or adoption
of new laws or regulations concerning existing concessions,
licences, permits and/or contracts, extreme fluctuations in
currency exchange rates, high rates of inflation, changes
in taxation policies, restrictions on foreign exchange and
repatriation, validity of export rights and payment of duties,
changing political conditions, currency controls, customs
regulations policies, changes or adoption of new laws affect-
ing foreign ownership, government participation or control
or working conditions and governmental regulations that
favour or require the awarding of contracts to local contrac-
tors or require foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction.
Changes, if any, in mining or investment policies or shifts
in political attitudes in any jurisdiction in which Teranga
operates may adversely affect its operations or profitability
and viability. Operations may be affected in varying degrees
by government regulations with respect to, but not limited
to, restrictions on prospecting, development, production,
price controls, export controls, currency remittance, income
taxes, royalties, expropriation of property, foreign invest-
ment, maintenance of claims, environmental legislation,
land use, forestry, land claims of local people, water use
and mine safety.
Failure to comply strictly with applicable laws, regulations
and local practices relating to mineral rights applications
and tenure, could result in loss, reduction or expropria-
tion of entitlements, or the imposition of additional local
or foreign parties as joint venture partners with carried or
other interests.
The occurrence of these various factors and uncertainties
cannot be accurately predicted and could have an adverse
effect on the operations or profitability of Teranga.
Mining Tax Regime Risk
Mining tax regimes in foreign jurisdictions are subject to
differing interpretations and are subject to constant change
and may include fiscal stability guarantees. Teranga’s
interpretation of taxation law as applied to its activities may
not coincide with that of the tax authorities. As a result,
transactions may be challenged by tax authorities and
Teranga’s operations may be assessed, which could result
in significant additional taxes, penalties and interest.
Teranga’s Senegalese operating subsidiary, SGO, was grant-
ed an exoneration from taxation including value added tax
and company tax; and no import duties shall be charged
on owned or rented equipment or on goods or services des-
tined for the Sabodala mine. The exoneration extends until
May 2015, after which time a tax rate of 25% is applicable.
Risks of being a Multinational Company
Teranga is a multinational company that conducts opera-
tions through mainly foreign subsidiaries, foreign companies
and joint ventures, and substantially all of the assets of
Teranga consist of equity in these entities. Accordingly,
any limitations, or the perception of limitations, on transfer
of cash or other assets between the parent company and
these entities, or among these entities, could restrict Teran-
ga’s ability to fund its operations efficiently, or to repay its
debts, and could impact negatively Teranga’s valuation and
share price.
Government Regulation
The mining, processing, development and mineral ex-
ploration activities of Teranga are subject to various laws
governing prospecting, development, production, taxes,
labour standards and occupational health, mine safety,
toxic substances, land use, water use, forestry, land claims
of local people, and other matters. Although the exploration
and development activities of Teranga are currently carried
out in accordance with all applicable rules and regulations,
no assurance can be given that new rules and regulations
will not be enacted or that existing rules and regulations will
not be applied in a manner which could limit or curtail pro-
duction or development. Amendments to current laws and
regulations governing operations and activities of mining
and milling or more stringent implementation thereof could
have a substantial adverse impact on Teranga.
Outbreak of Disease
The outbreak, or threatened outbreak, of any severe
communicable disease in Senegal could materially and ad-
versely affect the overall business environment in Senegal,
particular if such outbreak is inadequately controlled. This
in turn could materially and adversely affect domestic
2011 AnnuAl RepoRt 30/
labour supply. As Teranga’s revenue is currently derived
from its Senegal operations, any labour shortages in Sene-
gal could materially and adversely affect Teranga’s business
and results of operations. In addition, if any of Teranga’s
employees is affected by any severe communicable disease,
it could adversely affect or disrupt Teranga’s production and
materially and adversely affect its results of operations as
Teranga may be required to close its facilities to prevent the
spread of the disease. The spread of any severe communi-
cable disease in Senegal may also affect the operations of
Teranga’s suppliers, which could materially and adversely
affect Teranga’s business and results of operations.
In particular, malaria and other diseases such as HIV/AIDS
represent a serious threat to maintaining a skilled workforce
in the mining industry throughout Africa and are a major
healthcare challenge faced by Teranga’s operations in
Africa. There can be no assurance that Teranga will not lose
members of its workforce or see its workforce man-hours
reduced or incur increased medical costs as a result of
these health risks, which could materially and adversely af-
fect Teranga’s business and results of operations.
CONTINGENT LIABILITIES
The Company confirmed directly or via its holding subsidiar-
ies 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.
During the quarter ended December 31, 2011, SGO
received a tax assessment from the Senegalese tax authori-
ties claiming withholding taxes of approximately $24 million
relating to interest paid to SGML Capital under the Mining
Fleet Lease facility, director’s fees and services rendered by
offshore companies. SGO responded to the tax assessment
including evidence supporting treatment of withholding
taxes in accordance with the General Tax Code in Senegal.
In January 2012 the tax assessment was re-confirmed
by the Senegalese tax authorities. We have reviewed the
alleged breaches identified by the Senegalese tax authori-
ties with our legal counsel and are confident that they are
without merit and that these issues will be resolved with no
or an immaterial amount of tax due. As a result, in February
2012, SGO filed a notice to refer the tax assessment to
arbitration in accordance with Senegalese laws. The arbitra-
tion ruling is appealable to the International Court in Paris.
CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
The following are critical judgements 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 fi-
nancial 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 Re-
porting Mineral Resources and Ore Reserves and Qualified
Persons as defined in NI 43-101, which is similar to the
Australian standards. The estimated quantities of economi-
cally 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 commod-
ity 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 determin-
ing 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 pro-
duction. Each item’s life, which is assessed annually, has
regard to both its physical life limitations and to present as-
sessments of economically recoverable reserves of the mine
teranga gold corporation / management’s discussion & analysis 31/
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. As the
Company updated its estimate regarding the expected units
of production over the life of the mine, amortization under
the units of production basis will change. During 2011,
recoverable reserves increased, resulting in a decrease in
units of production amortization for the year.
mine Rehabilitation Provision
Management assesses the Company’s mine rehabilitation
provision annually. Significant estimates and assumptions
are made in determining the provisions for mine rehabilita-
tion as there are numerous factors that will affect the ulti-
mate 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 at each
reporting period 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 com-
modity 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 as-
sumptions that an independent market participant may take
into account. Cash flows are discounted by an appropriate
discount rate to determine the net present value. Manage-
ment 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 produc-
tion 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 produc-
tion 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 devel-
opment 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(s) to the interim consolidated financial state-
ments. 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 operat-
ing 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
US 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.
2011 AnnuAl RepoRt 32/
CHANGE IN ACCOUNTING POLICIES
With effect from October 1, 2010, exploration and evalua-
tion expenditures in relation to each separate area of inter-
est 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 recog-
nized as an exploration and evaluation asset in the year in
which they were 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 $27.3 million existing before
October 1, 2010 and capitalized to exploration assets, were
de-recognized and expensed through retained earnings.
Management believes that the change in accounting policy
results in reliable and more relevant information.
OUTSTANDING SHARE DATA
The Company’s fully diluted share capital as at the report
date was:
Ordinary shares
Stock options
Fully diluted share capital
NON-IFRS FINANCIAL MEASURES
The Company provides some non-IFRS measures as
supplementary information that management believes may
be useful to investors to explain Teranga’s financial results.
Outstanding
245,618,000
17,617,222
263,235,222
12 months ended
December 31, 2011
Period from Nov 23, 2010
to December 31, 2011
Gold produced
Gold sold
Cost of sales
Less: depreciation and amortization
Less: rehabilitation
Add: inventory movement
Total cash cost of sales
Total cash cost of sales per ounce sold
(oz)
(oz)
($’000)
($’000)
($’000)
($’000)
($’000)
$/oz
131,461
137,136
138,645
(33,885)
(473)
19,188
123,475
900
147,728
153,729
151,033
(37,442)
(530)
20,973
134,034
872
teranga gold corporation / management’s discussion & analysis
33/
tRansactiOn WitH Related PaRties
equity interests in Related Parties
Details of percentages of ordinary shares held in subsid-
iaries are disclosed in Note 37 to the Company’s Audited
Annual Consolidated Financial Statements.
transactions with Key management Personnel
Details of key management personnel compensation are
disclosed in Note 37 to the Company’s Audited Annual
Consolidated Financial Statements.
No loans were made to directors or director-related entities
during the year.
transactions with Other Related Parties
There was zero balance outstanding to related parties as
at December 31, 2011.
shareholdings
Teranga’s 90 percent shareholding in SGO, the company
operating the Sabodala gold mine, is held 89.5 percent
through Mauritius holding company, Sabodala Gold Mauritius
Limited (“SGML”), and the remaining 0.5 percent by indi-
viduals nominated by SGML to be at the board of directors
in order to meet the minimum shareholding requirements
under Senegalese law. On death or resignation, a share
individually held would be transferred to another represen-
tative of SGML or added to its current 89.5 percent share-
holding according to the circumstances at the time.
ceO/cFO ceRtiFicatiOn
The Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) are responsible for establish-
ing and maintaining disclosure controls and procedures
(“DC&P”) and internal control over financial reporting
(“ICFR”), as those terms are defined in National Instrument
52-109 Certification of Disclosure in Issuers’ Annual and
Interim Filings, for the Company.
In 2011, management focused on building up its admin-
istrative and finance group and control structure. A major
positive step forward occurred during 2011 with the imple-
mentation of a new ERP system. Further steps were taken
to strengthen the site management team.
The Company’s CEO and CFO certify that, as of December
31, 2011, the Company’s DC&P have been designed to
provide reasonable assurance that material information
relating to the Company is made known to them by others,
particularly during the period in which the interim filings
are being prepared; and information required to be dis-
closed by the Company in its annual filings, interim filings
or other reports filed or submitted by it under securi-
ties legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation. They also certify that the Company’s ICFR have
been designed 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. The control framework the Com-
pany’s CEO and CFO used to design the Company’s ICFR is
COSO. There is no material weakness relating to the design
of ICFR. There is no limitation on scope of design
as described in paragraph 3.3 of NI 52-109.
An evaluation of the effectiveness of the design and opera-
tion of our disclosure controls and procedures was conduct-
ed as of December 31, 2011 by the Company’s manage-
ment under the supervision of the CEO and the CFO. Based
on this evaluation, the CEO and the CFO have concluded
that, as of December 31, 2011, the Company’s DC&P are
effective to ensure that information required to be disclosed
in reports that we file or submit under Canadian securities
legislation is summarized and reported within the time
periods specified therein. The Company’s management,
under the supervision of the CEO and the CFO, has evalu-
ated the effectiveness of its internal control over financial
reporting. Based on this evaluation, management has
concluded that internal control over financial reporting
was effective as of December 31, 2011. There is no limita-
tion on scope of design as described in paragraph 5.3 of
NI 52-109. There has been no change in the Company’s
ICFR that occurred during the year ended December 31,
2011 which has materially affected, or is reasonably likely
to materially affect, the Company’s ICFR.
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, un-
certainty 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, depen-
dence on key personnel, currency, repatriation of earnings
and stock exchange price fluctuations.
2011 AnnuAl RepoRt 34/
FORWaRd-lOOKinG statements
Certain information included in this Management Discus-
sion 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 perfor-
mance, constitute “forward-looking statements”. The words
“believe”, “expect”, “will”, “intend”, ”anticipate”, “project”,
”plan”, “estimate”, “on track” and similar expressions iden-
tify forward-looking statements. Such forward-looking state-
ments 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 un-
known 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 im-
pact 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 US 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 develop-
ment activities; employee relations; availability and costs
associated with mining inputs and labour; the speculative
nature of exploration and development, including the risks
of obtaining necessary licenses and permits and diminish-
ing 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 proper-
ties; 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 prospec-
tus dated November 11, 2010 and in other Company filings
with securities and regulatory authorities which are avail-
able 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.
teranga gold corporation / management’s discussion & analysis 35/
MAnAgeMent’S ReSponSibilitY
foR finAnciAl RepoRting
The accompanying consolidated financial statements of the Company have been prepared by management in accor-
dance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Management acknowledges responsibility for the preparation and presentation of the consolidated financial statements,
including responsibility for significant accounting judgements and estimates and, where relevant, the choice of account-
ing principles. Management maintains an appropriate system of internal controls to provide reasonable assurance that
transactions are authorized, assets safeguarded, and proper records maintained.
The Audit Committee of the Board of Directors has met with the Company’s independent auditors to review the scope
and results of the annual audit and to review the consolidated financial statements and related financial reporting
matters prior to submitting the consolidated financial statements to the Board for approval.
The Company’s independent auditors, Deloitte & Touche LLP, have conducted an audit in accordance with generally
accepted auditing standards, and their report follows.
Alan R. Hill
Executive Chairman and CEO
Richard S. Young
President and CFO
2011 AnnuAl RepoRt
36/ teranga gold corporation
independAnt AuditOR’S
RepORt
To the Shareholders of Teranga Gold Corporation
We have audited the accompanying consolidated financial statements of Teranga Gold Corporation and its subsidiaries,
which comprise the consolidated statement of financial position as at December 31, 2011, and the consolidated state-
ment of comprehensive loss, statement of changes in equity and statement of cash flows for the fifteen months then
ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consoli-
dated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidat-
ed financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the
risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Teranga Gold Corporation and its subsidiaries as at December 31, 2011, and their financial performance and cash flows
for the fifteen months then ended in accordance with International Financial Reporting Standards.
Chartered Accountants
Licensed Public Accountants
February 21, 2012
statement OF cOmPReHensiVe lOss
For the fifteen months ended December 31, 2011
(in US$’000 except for share and per share amounts)
Revenue
Cost of sales
Gross profit
Other income
Stock-based compensation
Finance costs
Exploration and evaluation expenditures
Administration expenses
Net foreign exchange gains
Net change in unrealized gains on gold hedge
Net change in unrealized losses on gold hedge
loss before income tax
Income tax benefit
loss for the period
Other comprehensive loss:
Exchange differences arising on translation of Teranga corporate entity
Loss on valuation of available for sale financial asset, net of tax
Other comprehensive loss for the period
total comprehensive loss for the period
Profit / (Loss) attributable to:
– shareholders
– non-controlling interests
loss for the period
Total comprehensive profit / (loss) attributable to:
– shareholders
– non-controlling interests
loss per share from operations attributable to the shareholders
of the company during the period
– basic loss per share
– diluted loss per share
37/
15 months ended
december 31, 2011
187,141
(151,033)
36,108
848
(12,411)
(2,946)
(31,659)
(12,043)
4,486
1,789
(113)
(52,049)
(15,941)
92
(15,849)
(935)
(1,319)
(2,254)
(18,103)
(18,872)
3,023
(15,849)
(21,126)
3,023
(0.09)
(0.09)
note
7
8
7
34
9
10
24
23
25
25
The accompanying notes are an integral part of these consolidated financial statements.
2011 AnnuAl RepoRt
38/ teRAngA gold coRpoRAtion
statement OF Financial POsitiOn
For the fifteen months ended December 31, 2011
(in US$’000 except for share and per share amounts)
note
as at december 31, 2011
current assets
Cash and cash equivalents
Short-term investments
Restricted cash
Trade and other receivables
Inventories
Financial derivative assets
Other assets
Available for sale financial asset
total current assets
non-current assets
Inventories
Financial derivative assets
Property, plant and equipment
Mine development expenditure
Intangible assets
total non-current assets
total assets
current liabilities
Trade and other payables
Borrowings
Financial derivative liabilities
Provisions
total current liabilities
non-current liabilities
Financial derivative liabilities
Provisions
Borrowings
total non-current liabilities
total liabilities
equity
Issued capital
Foreign currency translation reserve
Contributed surplus
Investment revaluation reserve
Accumulated losses
equity attributable to shareholders
Non-controlling interests
total equity
total equity and liabilities
32
33
33
11
12
13
14
23
12
13
15
16
17
18
19
20
21
20
21
19
22
24
23
7,470
593
3,004
20,447
46,927
2,288
12,751
19,800
113,280
50,786
532
256,539
100,359
1,085
409,301
522,581
43,238
16,468
79,241
1,954
140,901
50,318
9,215
7,509
67,042
207,943
349,425
(935)
12,599
(1,319)
(46,208)
313,562
1,076
314,638
522,581
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
alan R. Hill
Director
alan R. thomas
Director
statement OF cHanGes in eqUitY
For the fifteen months ended December 31, 2011
(in US$’000 except for share and per share amounts)
issued capital
At October 1, 2010
Shares issued on incorporation of the Company
Shares issued on the acquisition of the Sabodala gold mine
and a regional exploration package
Shares issued from public and private offerings
Less: Share issue costs
At December 31, 2011
Foreign currency translation reserve
At October 1, 2010
Exchange difference arising on translation of Teranga corporate entity
At December 31, 2011
contributed surplus
At October 1, 2010
Stock-based compensation
At December 31, 2011
investment revaluation reserve
At October 1, 2010
Change in fair value
At December 31, 2011
accumulated losses
At October 1, 2010
Loss attributable to shareholders
Impact of change in accounting policy
At December 31, 2011
non-controlling interest
At October 1, 2010
Non-controlling interest arising from demerger – November 23, 2010
Non-controlling interest – portion of profit
At December 31, 2011
total shareholders’ equity at december 31, 2011
The accompanying notes are an integral part of these consolidated financial statements.
39/
note
15 months ended
december 31, 2011
22
22
22
24
23
4
–
–
230,678
135,005
(16,258)
349,425
–
(935)
(935)
–
12,599
12,599
–
(1,319)
(1,319)
–
(18,872)
(27,336)
(46,208)
–
(1,947)
3,023
1,076
314,638
2011 AnnuAl RepoRt
40/ teRAngA gold coRpoRAtion
statement OF casH FlOWs
For the fifteen months ended December 31, 2011
(in US$’000 except for share and per share amounts)
cash flows related to operating activities
loss for the period
Depreciation
Amortization of intangibles
Amortization of capitalized borrowing costs
Amortization of capitalized mine development costs
Unwinding of discount
Mine restoration and rehabilitation provision
Stock-based compensation
Net change in unrealized gains on gold hedge
Net change in unrealized losses on oil hedge
Deferred income tax benefit on reversal of temporary differences
Income tax paid
Changes in working capital
net cash provided by operating activities
cash flows related to investing activities
Increase in restricted cash
Decrease in short-term investments
Payments for purchase of property, plant and equipment
Payments made on mine development
Payments for purchase of intangibles
Payment for acquisition of Sabodala gold mine and regional land
package net of cash acquired
net cash used in investing activities
cash flows related to financing activities
Proceeds from issuance of capital stock, net of issue costs
Payment of borrowings
Draw down from finance loan facility net of borrowing cost paid
Interest paid on borrowings
net cash provided by financing activities
net increase in cash and cash equivalents held
cash and cash equivalents at the beginning of financial period
Effect of exchange rates on cash holdings in foreign currencies
cash and cash equivalents at the end of financial period
The accompanying notes are an integral part of these consolidated financial statements
note
15
17
9
16
9
21
10
32(b)
15
16
17
32(c)
15 months ended
december 31, 2011
(15,849)
28,195
490
328
9,433
47
425
12,411
(1,789)
113
(231)
(638)
(29,120)
3,815
(3,004)
181
(60,825)
(14,359)
(1,208)
(34,307)
(113,522)
118,747
(10,849)
9,612
(931)
116,579
6,872
–
598
7,470
41/
nOtes tO cOnsOlidated Financial statements
As at and for the fifteen months ended December 31, 2011
(in US$’000 except for share and per share amounts)
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 produc-
tion and sale of gold, as well as related activities such
as exploration and mine development. The Company was
incorporated in Canada on October 1, 2010.
Teranga was created to acquire the Sabodala gold mine
and a large regional exploration land package, located in
Senegal, West Africa, along with shares held in Oromin
Explorations Ltd. (“Oromin”) from Mineral Deposits Limited
(“MDL”), collectively referred to as the Sabodala Gold Assets.
The Sabodala gold mine, 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.
demeRGeR FROm mineRal
dePOsits limited (“demeRGeR”)
On November 23, 2010, Teranga completed the acquisition
of the Sabodala Gold Assets by a way of Demerger from
MDL. As part of the Demerger certain assets consisting of
all of the issued and outstanding shares of Sabodala Gold
(Mauritius) Limited (“SGML”), 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 (“SMC”), 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 Exploration
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. 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 represents the costs of assets and liabili-
ties acquired by Teranga from MDL by way of Demerger:
2011 AnnuAl RepoRt
42/
as at
november 23, 2010
Restatement 1
november 23, 2010
Restated
current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Financial derivative assets
Other assets
Available for sale financial asset
total current assets
non-current assets
Inventories
Mine development expenditure
Financial derivative assets
Intangible assets
Capitalized mine convention costs
Property, plant and equipment
total non-current assets
total assets
current liabilities
Trade and other payables
Borrowings
Financial derivative liabilities
Current tax liabilities
Provisions
total current liabilities
non-current liabilities
Trade and other payables
Financial derivative liabilities
Deferred tax liabilities
Provisions
Borrowings
total non-current liabilities
total liabilities
Non-controlling interest
net assets
14,924
238,089
82,842
1,074
2,688
21,109
360,726
6,514
112,710
1,859
367
10,133
209,023
340,606
701,332
256,910
8,630
37,078
518
1,696
304,832
1,657
94,270
231
2,284
16,256
114,698
419,530
1,563
283,365
(12,267)
(12,267)
8,427
8,427
(3,840)
0
0
0
384
(3,456)
14,924
238,089
70,575
1,074
2,688
21,109
348,459
6,514
112,710
1,859
367
10,133
217,450
349,033
697,492
256,910
8,630
37,078
518
1,696
304,832
1,657
94,270
231
2,284
16,256
114,698
419,530
1,947
279,909
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
Restatement 1
Net assets acquired
Less deferred compensation (C$50 million)
Value of shares issued on acquisition
283,365
(49,231)
234,134
(3,456)
0
(3,456)
november 23, 2010
Restated
279,909
(49,231)
230,678
(1) During the preparation of the consolidated financial statements for the fifteen months ended December 31, 2011, the Company identified two changes required
relating to the net assets acquired as part of the demerger from MDL on November 23, 2010. Property, plant and equipment was understated by $8.4 million
related to accelerated depreciation of mobile equipment in excess of the Company’s policy. Stockpile inventory was overstated by a total of $12.3 million due
to accelerated depreciation related to mobile equipment and costs assigned to inventory in excess of net realizable value.
The restated net assets as at November 23, 2010 reflect a total decrease of $3.5 million after adjusting the non-
controlling interest with a corresponding adjustment to the Company’s share capital.
teranga gold corporation / notes to consolidated financial statements
43/
3. SIGNIFICANT ACCOUNTING POLICIES
Statement of Compliance
These financial statements have been prepared in
accordance with International Financial Reporting
Standards (“IFRS”) 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 con-
solidated 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 be-
tween 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 as-
sets and liabilities reflects those previously reported in the
financial statements of MDL. Accordingly, the consolidated
statements of comprehensive loss, changes in equity and
cash flows reflect the corporate activities since incorporation
of Teranga on October 1, 2010 and the operations of the
Company from November 23, 2010. The accounting policies
set out below have been applied consistently.
Change of Fiscal Year
On May 10, 2011 the Board of Directors passed a resolu-
tion setting the financial year end of the Company at
December 31st. The Board felt this change would better
synchronize its financial reporting with that of comparable
companies within the mining sector as well as better align
its financial reporting with its business planning cycle. For
further information on details of this change please refer
to the Notice of Change of Year End report filed by the
Company on SEDAR pursuant to Section 4.8 of National
Instrument 51-102.
Critical Accounting Judgements and Key Sources
of Estimation Uncertainty
The preparation of consolidated financial statements in
conformity with IFRS requires management to make judge-
ments, 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 judgements, estimates and as-
sumptions are based on management’s best knowledge
of the relevant facts and circumstances, having regard to
prior experience. While management believes that these
judgements, estimates and assumptions are reasonable,
actual results may differ from the amounts included in the
consolidated financial statements.
Judgements 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
6 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 con-
solidating the financial statements of Teranga Gold Corpora-
tion and its subsidiaries; Teranga Gold (B.V.I.) Corporation,
Teranga Gold (USA) 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
31 to the consolidated 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 acquisi-
tion, 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 com-
bination 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 loss.
2011 AnnuAl RepoRt 44/
The consolidated financial statements include the informa-
tion 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 good-
will) of consolidated subsidiaries are identified separately
from the Company’s equity therein. Non-controlling inter-
ests 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 loss is attributed to non-controlling
interests even if this results in the non-controlling interests
having a deficit balance.
(b) 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 the Canadian dollar and
the functional currency of all other entities within the group
is the United States dollar. The consolidated financial
statements are presented in United States dollars, which
is the Company’s presentation currency.
Transactions and Balances
Foreign currency transactions are translated into the func-
tional currency using the exchange rates prevailing at the
date of transaction. Foreign currency monetary items are
translated at the period-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-mon-
etary items measured at fair value are reported at the ex-
change 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 differ-
ences 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 corpo-
rate entity whose functional currency is different from the
Company’s presentation currency are translated as follows:
• Assets and liabilities are translated at period-end
exchange rates prevailing at the reporting date
• Income and expenses are translated at average exchange
rates for the period
• Equity is translated at the exchange rates prevailing at
the date of the transaction
• Exchange differences arising on translation of Teranga
corporate entity 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.
(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 90 days or less at the date of acquisition.
Restricted cash is cash held in the Company’s Proceed
Account operated by 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 guaran-
teed investment certificates with maturity dates of more
than 90 days. Short-term investments are carried at
amortized cost.
(e) 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, includ-
ing depreciation and amortization, incurred in converting
materials into finished goods.
teranga gold corporation / notes to consolidated financial statements 45/
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 de-
termined 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 com-
pletion and estimated costs necessary to make the sale.
(f) Financial assets
The Company classifies its financial assets in the following
three categories: at fair value through profit or 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 or Loss
Investments are recognized and de-recognized 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 as 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 loss.
Loans and Receivables
Trade and other receivables, loans, cash and cash equiva-
lents, 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 investment 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 investment 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 ex-
pected 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 uncol-
lectible trade receivables is reduced by the impairment loss
through the use of an allowance account. Subsequent recov-
eries 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.
2011 AnnuAl RepoRt 46/
De-recognition of Financial Assets
The Company de-recognizes 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.
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 the statement of
comprehensive loss.
(g) Property, Plant and equipment
Property, plant and equipment are 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. Assets under constructions and
assets purchased that are not ready for use are capitalized
under capital work in progress.
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 as-
sociated 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
loss during the financial period in which they are incurred.
Depreciation
The depreciable amount of all fixed assets, excluding free-
hold 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 (‘UOP’) method when depreciating mining
assets which results in a depreciation charge proportional
to the depletion of the anticipated remaining life of mine.
Mining assets include buildings and property improvements
and plant and equipment.
The depreciation is calculated using the following method:
class of Property, Plant
and equipment
method
Years
Buildings and property
improvements
UOP
Plant and equipment
UOP/Straight line
5.0 – 8.0 years
Office furniture and
equipment
Straight line
3.0 – 6.7 years
Motor vehicles
Straight line
5.0 years
Assets Under Finance Lease
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets.
(h) 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 commence-
ment 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 state-
ment 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(m).
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 representa-
tive of the time pattern in which economic benefits from
the leased asset are consumed.
Plant equipment under
finance lease
Straight line
5.0 – 7.0 years
(i) mine development
The assets’ residual values, depreciation method and use-
ful lives are reviewed and adjusted, if appropriate, at each
reporting date.
Capital work in progress is not depreciated.
Development expenditure is recognized at cost less accumu-
lated amortization and any impairment losses. Where com-
mercial 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.
teranga gold corporation / notes to consolidated financial statements
47/
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 instrument is less than twelve months.
(m) 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.
(n) employee Benefits
A liability is recognized for benefits accruing to employees
in respect of wages and salaries, annual leave and long-term
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 ex-
pected 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 the reporting date.
(o) 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 obliga-
tion 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) 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.
(k) impairment of long-lived 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 reason-
able and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-gen-
erating 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 the statement of comprehen-
sive 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 the statement
of comprehensive loss.
(l) derivative Financial instruments
The Company enters into a variety of derivative financial in-
struments to manage its exposure to gold and oil price risk,
including gold forward contracts and oil hedge contracts.
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 immedi-
ately as the Company does not apply hedge accounting.
2011 AnnuAl RepoRt 48/
(p) Restoration and Rehabilitation
A provision for restoration and rehabilitation is recognized
when there is a present obligation as a result of explora-
tion, 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 esti-
mate 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 restora-
tion costs are reviewed annually and any changes in the
estimate are reflected in the present value of the restoration
provision at each reporting date.
(q) income tax
Current Income Tax
Current income tax is calculated by reference to the amount
of income taxes payable or recoverable in respect of the tax-
able profit or tax loss for the period. Current income tax is
calculated on the basis of the law enacted or substantively
enacted at reporting date in the countries where the Com-
pany’s subsidiaries operate and generate taxable income.
Deferred Income Tax
Deferred income 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 tem-
porary differences will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary dif-
ferences 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 uti-
lise 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 substantively 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.
(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 instru-
ments 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.
teranga gold corporation / notes to consolidated financial statements 49/
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 inter-
est 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) Share-based Payment
The Company operates an equity-settled, share-based
compensation plan for remuneration of its management,
directors, employees and consultants.
The fair value of the options granted is measured using
the 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.
Stock-based compensation relating to stock options is
charged to the statement of comprehensive loss.
(t) Revenue Recognition
Gold and Silver Bullion Sales
Revenue is recognized when persuasive evidence exists
that all of the following criteria are met:
• the significant risks and rewards of ownership of the
product have been transferred to the buyer;
• neither continuing managerial involvement to the degree
usually associated with ownership, nor effective control
over the gold sold, has been retained;
• the amount of revenue can be measured reliably;
• it is probable that the economic benefit associated
with the sale will flow to the Company; and
• the costs incurred or to be incurred in respect of the
sale can be measured reliably.
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) Exploration and Evaluation
Exploration and evaluation expenditures in relation to each
separate area of interest are expensed in the consolidated
statement of comprehensive loss until the determination
of the technical feasibility and the commercial viability of
the project.
The technical feasibility and commercial viability of extract-
ing 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 mine development expendi-
tures to producing properties on the consolidated statement
of financial position and will be amortized using the units-
of-production method over the estimated ore reserves.
Exploration and evaluation assets comprise of costs
incurred to secure the mining concession, 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.
(v) Earnings Per Share
Basic earnings per share are determined by dividing the
profit/(loss) attributable to equity holders of the Company
by the weighted average number of common shares out-
standing during the financial period.
Diluted earnings per share is calculated by adjusting the
weighted average number of common shares outstanding to
assume conversion of all dilutive potential common shares.
2011 AnnuAl RepoRt 50/
(w) Joint Venture arrangements
Interests in jointly controlled assets in which the
Company is a venturer and has joint control are included
in the consolidated 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.
(x) Government Royalties
Royalties are accrued and charged against earnings when
the liability from production of the gold arises.
4. cHanGe in accOUntinG POlicies
With effect from October 1, 2010, exploration and evalua-
tion expenditures in relation to each separate area of inter-
est are expensed as exploration costs in the consolidated
statement of comprehensive loss until the determination of
the technical feasibility and the commercial viability of the
project. Under MDL’s previous policy, exploration and evalu-
ation expenditures were recognized as an exploration and
evaluation asset in the year in which they were incurred and
assessed for impairment.
As a result of the change in the accounting policy, all
exploration costs, including 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. Had these explora-
tion and evaluation expeditures been capitalized in the
current year’s statement of financial position the impact
on the basic and diluted EPS would have been a reduction
of the loss per share of 15 cents.
5. FUtURe accOUntinG POlicies
iFRs 9 – Financial instruments
IFRS 9, “Financial instruments” (IFRS 9) was issued by the
IASB in November 2009 and will replace IAS 39, “Financial
Instruments: Recognition and Measurement” (IAS 39). IFRS
9 replaces the multiple rules in IAS 39 with a single ap-
proach to determine whether a financial asset is measured
at amortized cost or fair value and a new mixed measure-
ment model for debt instruments having only two catego-
ries: amortized cost and fair value. The approach in IFRS 9
is based on how an entity manages its financial instruments
in the context of its business model and the contractual
cash flow characteristics of the financial assets. This
standard also requires a single impairment method to be
used, replacing the multiple impairment methods in IAS 39.
IFRS 9 is effective for annual periods beginning on or after
January 1, 2015. The Company is currently evaluating the
impact of IFRS 9 on its consolidated financial statements.
iFRs 10 – consolidated Financial statements
IFRS 10, “Consolidated financial statements” (IFRS 10)
was issued by the IASB in May 2011 and will replace SIC
12, “Consolidation – Special purpose entities” and parts of
IAS 27, “Consolidated and separate financial statements”.
Under the existing IFRS, consolidation is required when an
entity has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activi-
ties. IFRS 10 establishes principles for the presentation
and preparation of consolidated financial statements when
an entity controls one or more other entities. This standard
(i) requires an entity that controls one or more other entities
to present consolidated financial statements; (ii) defines
the principle of control, and establishes control as the basis
for consolidation; (iii) sets out how to apply the principle of
control to identify whether an investor controls an investee
and therefore must consolidate the investee; and (iv) sets
out the accounting requirements for the preparation of
consolidated financial statements. IFRS 10 is effective for
annual periods beginning on or after January 1, 2013. The
Company is currently evaluating the impact of IFRS 10 on
its consolidated financial statements.
iFRs 11 – Joint arrangements
IFRS 11, “Joint arrangements” (IFRS 11) was issued by
the IASB in May 2011 and will supersede IAS 31, “Interest
in joint ventures” and SIC 13, “Jointly controlled entities
– Non-monetary contributions by venturers” by removing
the option to account for joint ventures using proportionate
consolidation and requiring equity accounting. Venturers
will transition the accounting for joint ventures from the
proportionate consolidation method to the equity method
by aggregating the carrying values of the proportionately
consolidated assets and liabilities into a single line item on
their financial statements. In addition, IFRS 11 will require
joint arrangements to be classified as either joint operations
teranga gold corporation / notes to consolidated financial statements 51/
or joint ventures. The structure of the joint arrangement will
no longer be the most significant factor when classifying
the joint arrangement as either a joint operation or a joint
venture. IFRS 11 is effective for annual periods beginning
on or after January 1, 2013. The Company is currently
evaluating the impact of IFRS 11 on its consolidated finan-
cial statements.
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 12, “Disclosure of interests in other entities” (IFRS
12) was issued by the IASB in May 2011. IFRS 12 requires
enhanced disclosure of information about involvement
with consolidated and unconsolidated entities, including
structured entities commonly referred to as special purpose
vehicles, or variable interest entities. IFRS 12 is effective
for annual periods beginning on or after January 1, 2013.
The Company is currently evaluating the impact of IFRS
12 on its consolidated financial statements.
IFRS 13 – Fair Value Measurement
IFRS 13, “Fair value measurement” (IFRS 13) was is-
sued by the IASB in May 2011. This standard clarifies the
definition of fair value, required disclosures for fair value
measurement, and sets out a single framework for measur-
ing fair value. IFRS 13 provides guidance on fair value in a
single standard, replacing the existing guidance on measur-
ing and disclosing fair value which is dispersed among
several standards. IFRS 13 is effective for annual periods
beginning on or after January 1, 2013. The Company is cur-
rently evaluating the impact of IFRS 13 on its consolidated
financial statements.
IAS 1 – Presentation of Financial Statements
An amendment to IAS 1, “Presentation of financial state-
ments” (IAS 1) was issued by the IASB in June 2011. The
amendment requires separate presentation for items of
other comprehensive income that would be reclassified to
profit or loss in the future, such as foreign currency differ-
ences on disposal of a foreign operation, if certain condi-
tions are met from those that would never be reclassified to
profit or loss. The effective date is July 1, 2012 and earlier
adoption is permitted. The Company is currently evaluating
the impact of the amendment to IAS 1 on its consolidated
financial statements.
IAS 27 – Separate Financial Statements
IAS 27, “Separate financial statements” (IAS 27) was
re-issued by the IASB in May 2011 to only prescribe the
accounting and disclosure requirements for investments in
subsidiaries, joint ventures and associates when an entity
prepares separate financial statements. The consolidation
guidance is now included in IFRS 10. The amendments
to IAS 27 are effective for annual periods beginning on or
after January 1, 2013. The Company is currently evaluating
the impact of the amendments to IAS 27 on its consoli-
dated financial statements.
IAS 28 – Investments in Associates and Joint Ventures
IAS 28, “Investments in associates and joint ventures”
(IAS 28) was re-issued by the IASB in May 2011. IAS 28
continues to prescribe the accounting for investments in
associates, but is now the only source of guidance describ-
ing the application of the equity method. The amended IAS
28 will be applied by all entities that have an ownership
interest with joint control of, or significant influence over,
an investee. The amendments to IAS 28 are effective for
annual periods beginning on or after January 1, 2013. The
Company is currently evaluating the impact of the amend-
ments to IAS 28 on its consolidated financial statements.
6.
CRITICAL ACCOUNTING JUDGEMENTS
AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
Critical Judgements in Applying the Company’s
Accounting Policies
The following are critical judgements that management has
made in the process of applying the Company’s account-
ing policies and that have the most significant effect on the
amounts recognized in the consolidated financial statements:
Ore Reserves
Management estimates its ore reserves based upon infor-
mation compiled by Competent Persons with the Canadian
Code for Reporting Mineral Resources and Ore Reserves
and Qualified Persons as defined in NI 43-101, which is
similar to the Australasian standards. The estimated quanti-
ties of economically recoverable reserves are based upon
interpretations of geological models and require assump-
tions 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, mine development expenditures,
provision for mine restoration and rehabilitation, the rec-
ognition of deferred tax assets, as well as the amount of
depreciation and amortization charged to the statement of
comprehensive loss.
2011 AnnuAl RepoRt 52/
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 the Canadian dollar
and the functional currency of all other entities within the
group is the United States dollar. Functional currency of
each of the entities 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.
Key sources of estimation Uncertainty
The following are the key assumptions concerning the
future and other key sources of estimation uncertainty
at the statement of financial position 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 mining assets. This
results in a depreciation/amortization charge proportional to
the depletion of the anticipated remaining life of mine pro-
duction. Each item’s life, which is assessed annually, has
regard to both its physical life limitations and to present as-
sessments 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 of pro-
duction calculation is based on life of mine gold production.
During the quarter ended June 30, 2011 the Company
updated its estimate regarding the expected units of
production over the life of the mine based on the addi-
tional 123,000 ounces added to the proven and probable
reserves as disclosed in the press release the Company
issued on May 2, 2011. As a result, the depreciation of cer-
tain assets that are amortized under the units of production
basis was adjusted, resulting in $1.7 million lower deprecia-
tion cost for the year.
Mine Restoration and Rehabilitation Provision
Management assesses its mine restoration and rehabilitation
provision annually. Significant estimates and assumptions
are made in determining the provision for mine rehabilitation
as there are numerous factors that will affect the ultimate
liability payable. These factors include estimates of the ex-
tent, the timing and the cost of rehabilitation activities, tech-
nological changes, regulatory change, cost increases, and
changes in discount rates. Those uncertainties may result in
actual expenditure differing from the amounts currently pro-
vided. The provision at the reporting date represents man-
agement’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 perfor-
mance. 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 pres-
ent 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 produc-
tion 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 produc-
tion 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 devel-
opment or mineable reserve development. It is also at this
point that depreciation/depletion commences.
teranga gold corporation / notes to consolidated financial statements 53/
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(l) 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 esti-
mates and assumptions. Changes in assumptions concern-
ing 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 grant-
ed in accordance with the accounting policy stated in Note
3(s) to the consolidated financial statements. The fair value
of the options granted is measured using the 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
assumption of volatility based on information available in
the mining industry using comparable companies operating
in the gold sector.
7. ReVenUe
Gold sales at spot price
Silver sales
Realized loss on gold forward contracts
sales revenue
Interest revenue from bank deposits and short-term investments
Other income
15 months ended
december 31, 2011
236,232
641
(49,732)
187,141
848
848
During the fifteen months ended December 31, 2011,
72,000 ounces were delivered into gold hedge contracts
at $846 per ounce, representing 47% of gold sales for the
period, and 81,728 ounces of gold were sold into the spot
market at an average price of $1,537 per ounce resulting
in an average realized price for the fifteen months of
$1,213 per ounce.
8. cOst OF sales
Cost of sales:
- mine production costs
- realized gain on oil hedge contracts
- depreciation and amortization
- royalties
- rehabilitation
- inventory movements
total cost of sales
15 months ended
december 31, 2011
127,530
(2,316)
37,442
7,035
530
(19,188)
151,033
2011 AnnuAl RepoRt
54/
9. FINANCE COSTS
Interest on borrowings
Amortization of capitalized borrowing costs
Unwinding of discount
Political risk insurance
Bank charges
Total finance costs
10. INCOME TAXES
Current income tax expense
Deferred income tax benefit on reversal of temporary differences
Total income tax benefit
15 months ended
December 31, 2011
1,317
328
47
1,131
123
2,946
15 months ended
December 31, 2011
139
(231)
(92)
The Company’s income tax benefit differs from the amount computed by applying the combined Canadian federal and
provincial income tax rates to loss before income taxes as a result of the following:
Statutory tax rates 28.8%
Income tax benefit computed at statutory rates
Non-deductible items
Income not subject to tax
Difference between deferred and current rate
Unrecognized deferred tax assets
Other
Income tax benefit
15 months ended
December 31, 2011
(4,591)
–
–
–
4,499
(92)
Deferred income tax assets are recognized for tax loss carry-
forwards, property, plant and equipment and the share issu-
ance costs to the extent that the realization of the related tax
benefit through future taxable profits is probable. The Compa-
ny did not recognize deferred income tax assets of $5,291,000
in respect of losses, property, plant and equipment and share
issuance costs amounting to $21,163,000 that can be carried
forward against future taxable income. The losses, property,
plant and equipment and share issuance costs amounting to
$21,163,000 will expire in the years 2030 to 2035.
Deferred income tax liabilities have not been recognized for
the withholding tax and other taxes that would be payable on
the unremitted earnings of certain subsidiaries. Such amounts
are permanently reinvested. Unremitted earnings totalled
$48,048,000 at December 31, 2011.
11. TRADE AND OTHER RECEIVABLES
Current
Trade receivable (i)
Other receivables (ii)
Total trade and other receivables
As at December 31, 2011
17,120
3,327
20,447
(i)
Trade receivable relates to gold shipments made prior
to December 31, 2011 that were settled on January 3
and January 10, 2012.
(ii) Other receivables primarily include receivables from
suppliers for services provided, materials and utilities
used at Sabodala gold mine.
teranga gold corporation / notes to consolidated financial statements
12. inVentORies
current
Gold bullion
Gold in circuit
Ore stockpile – work in progress
Total gold inventories
Diesel fuel
Materials and supplies
Goods in transit
Total other inventories
total current inventories
non-current
Ore stockpiles
total inventories
13. Financial deRiVatiVe assets
current
Oil hedge contracts
non-current
Oil hedge contracts
total financial derivative assets
55/
as at december 31, 2011
2,152
2,539
17,437
22,128
1,371
21,687
1,741
24,799
46,927
50,786
97,713
as at december 31, 2011
2,288
532
2,820
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 (West Texas Intermediate price). At Decem-
ber 31, 2011, the remaining 100,000 barrels were hedged
with a market value of $2.8 million at the reporting date
spot price of $98.8 per barrel.
14. OtHeR assets
current
Prepayments (i)
Security deposit (ii)
total other assets
as at december 31, 2011
11,251
1,500
12,751
(i)
Prepayments include primarily $7.9 million advance
given for the new mining fleet with the balance repre-
senting advances to other contractors.
(ii) The security deposit represents mainly a guarantee in
respect of the finance lease facility for the mining fleet.
2011 AnnuAl RepoRt
56/
15. PROPeRtY, Plant and eqUiPment
Buildings &
Office
furniture
and
improvement equipment equipment
property Plant and
Plant and
equipment
under
finance
lease
motor
vehicles
capital
work in
progress
total
–
–
–
–
–
–
–
30,838
–
–
1,378
172,424
–
6,459
11,514
575
–
–
704
1,774
–
–
707
25,787
–
–
16,308
26,344
60,825
–
(30,611)
257,742
60,825
6,459
–
cost
Balance at October 1, 2010
Property, plant and equipment arising
from demerger – November 23, 2010
Additions
Capitalized mine rehabilitation
Transfer
Balance at december 31, 2011
32,216
190,397
1,279
2,481
42,095
56,558
325,026
accumulated depreciation
Balance at October 1, 2010
Accumulated depreciation arising
–
–
–
–
–
from demerger – November 23, 2010 – restated 4,102
2,701
Depreciation expense
25,853
15,973
399
272
913
466
9,025
8,783
Balance at december 31, 2011
6,803
41,826
671
1,379
17,808
net book value
–
–
–
–
–
40,292
28,195
68,487
Balance at december 31, 2011
25,413
148,571
608
1,102
24,287
56,558
256,539
Additions made to property, plant and equipment during the fifteen months ended December 31, 2011 relate mainly to the
ongoing mill expansion and additional mining equipment acquired.
The Company has fixed assets that are fully amortized but still in use with gross book value of $1 million.
16. mine deVelOPment exPenditURe
cost
Balance at October 1, 2010
Mine development expenditure arising from demerger – November 23, 2010
Change of accounting policy* (see Note 4)
Expenditures incurred during the period
Balance at december 31, 2011
accumulated depreciation
Balance at October 1, 2010
Accumulated depreciation arising from demerger – November 23, 2010
Depreciation expense
Balance at december 31, 2011
carrying amount
as at december 31, 2011
as at december 31, 2011
–
127,336
(17,277)
14,359
124,418
–
14,626
9,433
24,059
100,359
* 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 the Sabodala gold mine.
teranga gold corporation / notes to consolidated financial statements
17. intanGiBle assets
cost
Balance at October 1, 2010
Intangible assets arising from demerger – November 23, 2010
Additions
Balance at december 31, 2011
accumulated amortization
Balance at October 1, 2010
Accumulated amortization arising from demerger – November 23, 2010
Amortization expense
Balance at december 31, 2011
carrying amount
Balance at december 31, 2011
57/
as at december 31, 2011
–
707
1,208
1,915
–
340
490
830
1,085
Intangible assets represent intangible computer software.
Amortization expense is included in the statement of com-
prehensive loss under Administration expenses.
The following useful life is used in the calculation of amor-
tization: Software – 2.5 years. The remaining amortization
period of the majority of our software is 2.25 years.
18. tRade and OtHeR PaYaBles
current
Unsecured liabilities:
- trade payables (i)
- sundry creditors and accrued expenses
- government royalties (ii)
- amounts payable to Government of Senegal (iii)
total trade and other payables
as at december 31, 2011
18,860
13,733
5,887
4,758
43,238
(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) $4 million to which an annual interest rate of 6%
applies is payable to the Government of Senegal relat-
ing to the historical cost of acquiring the mine license.
The Company anticipates paying this amount along
with the accrued interest payable within the next 3
months therefore it is disclosed as current payable.
2011 AnnuAl RepoRt
58/
19. BORROWinGs
current
Finance lease liabilities (i)
- finance lease liabilities
- borrowing costs
non-current
Secured at amortized cost:
Finance lease liabilities (i)
- finance lease liabilities
- borrowing costs
as at december 31, 2011
16,799
(331)
16,468
7,573
(64)
7,509
23,977
(i)
SGML (Capital) Limited entered into an amended
agreement with Société Générale on July 14, 2010
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). During
the quarter ended December 31, 2011, the Company
finalized the expansion of the mobile equipment loan
with Société Générale by an additional $12.8 million.
The amended facility contains a quarterly repayment
schedule concluding with the final payment on Sep-
tember 30, 2013. The facility is currently drawn down
to $24.4 million.
(ii) The Project Finance Facility provided by Macquarie
Bank Limited for the Sabodala gold mine has been
fully repaid as of September 30, 2010.
All of the obligations under the facility with Macquarie Bank
Limited continue due to the oil hedge and the gold hedging
contracts.
The Macquarie Loan Facility and Société Générale Equip-
ment Lease Facility include typical security packages which
involve share pledges as well as mortgages or charges over
the physical assets of the material subsidiaries includ-
20. Financial deRiVatiVe liaBilities
ing the Sabodala mining concession and its associated
property rights. Specifically, the Macquarie Bank Limited
security package includes: (i) a fixed and floating charge in
respect of all assets of Teranga BVI; (ii) a share mortgage in
respect of all shares held by Teranga in Teranga BVI; (iii) a
share mortgage over Teranga’s shares in SGML; (iv) a share
pledge over shares in SGO held by SGML and nominated
directors of Teranga and over shares in SMC held by SGML;
(v) a fixed and floating charge over all assets of SGML
(other than SGML’s shares in SMC); (vi) a fixed and floating
charge over all SGML’s assets located outside of Mauritius;
(vii) a fixed and floating charge over all assets of SGO held
outside of Senegal; (viii) a mortgage of the Sabodala min-
ing concession and certain real property in Senegal and a
pledge over all SGO’s assets in Senegal; (ix) an assignment
by way of security of SGO’s interest in project documents
including the Sabodala mining concession and the mining
convention; and (x) a pledge agreement in respect of bal-
ances of local banking accounts held by SGO in Senegal.
Under the Société Générale Equipment Lease Facility the
security package includes: (i) a guarantee issued by SGO
to Société Générale of up to US$50,000,000; (ii) a share
mortgage over all shares in SGML Capital held by Teranga;
and (iii) a fixed and floating charge over all the assets of
SGML Capital.
Financial derivative liabilities:
Gold forward contracts
Disclosed as:
Current
Non-current
as at december 31, 2011
129,559
79,241
50,318
teranga gold corporation / notes to consolidated financial statements
59/
At December 31, 2011, the hedge position comprised
174,500 ounces of flat forward sales at an average $826
per ounce. At December 31, 2011 the mark-to-market gold
hedge position at reporting date spot price of $1,566 was
in a liability position of $129.6 million.
The Company has elected to defer its first quarter 2012
deliveries into its hedge contracts until the second half of
2012 in order to sell all of the Company’s gold production
at the higher spot price of gold. The Company believes that
the deferral of its hedge deliveries in the first quarter of
2012 should ensure that its expected cash flow from opera-
tions, along with its cash holdings is sufficient to meet its
first and second quarter 2012 obligations including the
completion of the mill expansion.
21. PROVISIONS
Current
Employee benefits (i)
Non-Current
Mine restoration and rehabilitation (ii)
As at December 31, 2011
1,954
9,215
11,169
(i)
The current provisions for employee benefits include
$1.6 million accrued vacation and $0.4 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 concession. The major-
ity of the reclamation activity will occur at the comple-
tion of the active mining and processing (expected
completion is 2019) but a limited amount of concur-
rent rehabilitation will occur through the mine life.
Balance at October 1, 2010
Transfer of provision from demerger – November 23, 2010
Additional provisions recognized
Capitalized mine rehabilitation
Unwinding of discount
Balance at December 31, 2011
–
2,284
425
6,459
47
9,215
During 2011 the existing rehabilitating plan for the mine
site was updated by management for increases in envi-
ronmental disturbance and constructive obligations. The
increase during the year reflects cost increases, an ex-
panded operations foot print, refinement in estimated cash
outflows, a lower discount rate due to lower interest rates
globally and a refined methodology which increased the li-
ability by $6.5 million. The most significant components of
the liability relate to reclaiming the tailings pond and waste
dumps. Management plans to engage a third party during
2012 to review and update the existing rehabilitation study.
22. ISSUED CAPITAL
Common shares issued and outstanding
Balance at October 1, 2010
Shares issued on incorporation of the Company
Shares issued from initial public offering
Less: Share issue costs
Shares issued on demerger – restated
Balance at December 31, 2011
Number of shares
–
100
45,617,900
–
200,000,000
245,618,000
Amount
–
–
135,005
(16,258)
230,678
349,425
2011 AnnuAl RepoRt
60/
On November 23, 2010, Teranga completed the acquisition
of the Sabodala gold mine and a regional exploration pack-
age 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, 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 $16.3 million.
The Company is authorized to issue an unlimited number
of common shares with no par value. Holders of common
shares are entitled to one vote for each common share on
all matters to be voted on by shareholders at meetings of
the Company’s shareholders. All dividends which the board
of directors may declare shall be declared and paid in
equal amounts per share on all common shares at the time
outstanding. There are no pre-emptive, redemption or con-
version rights attaching to the common shares. All common
shares, when issued, are and will be issued as fully paid
and non-assessable shares without liability for further calls
or to assessment.
23. AVAILABLE FOR SALE
FINANCIAL ASSETS
As part of the acquisition of the Sabodala gold mine and
regional land package by way of Demerger from MDL,
Teranga acquired 18,699,500 common shares of Oromin
Exploration Limited, classified as available for sale in
accordance with IAS 39 “Financial Instruments: Recogni-
tion and Measurement”.
The following table outlines the change in fair value of the
investment in Oromin which is recognized in the investment
revaluation reserve:
As at December 31, 2011
–
21,109
(1,319)
10
19,800
Balance at October 1, 2010
Acquisition of Oromin arising from demerger – November 23, 2010
Change in fair value during the period
Foreign exchange gain
Balance at December 31, 2011
24. RESERVE
The foreign currency translation reserve records histori-
cal exchange differences arising on translation from the
functional currency of the Company’s corporate entity into
United States dollars which are recorded directly to the
foreign currency translation reserve within the consolidated
statement of equity.
teranga gold corporation / notes to consolidated financial statements
25. lOss PeR sHaRe (lPs)
Basic LPS (US$)
Diluted LPS (US$)
Basic LPS:
Net loss used in the calculation of basic LPS
Weighted average number of common shares for the purposes of basic LPS (‘000)
Weighted average number of common shares for the purpose of diluted LPS (‘000)
61/
15 months ended
december 31, 2011
(0.09)
(0.09)
(18,872)
215,198
215,198
The determination of the weighted average number of common shares - diluted excludes 18 million shares related to stock
options that were antidilutive for the year ended December 31, 2011.
26. diVidends
During the fifteen months ended December 31, 2011, no dividends were paid.
27. cOmmitments FOR exPenditURe
(a) capital expenditure commitments
Capital expenditure commitments outstanding comprised:
Sabodala Gold Mine – expansion
Additional mining equipment
Payments due within one year
as at december 31, 2011
21,400
5,045
26,445
(b) exploration commitments
28. leases
The Company has committed to spend a total of
$5.6 million over the next year 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 au-
thorities in the surrounding Tambacounda region during
the term of the Mining Concession.
• $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 on training of Directorate of Mines
and Geology officers and Mines Ministry
(a) Operating lease commitments
The Company has entered into an agreement to lease prem-
ises 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 $306,000 is payable within a year and a remain-
ing $25,000 is payable by February 27, 2013.
During the fifteen months ended December 31, 2011 the
Company also entered into an agreement to lease an office
space in Dakar, Senegal until April 30, 2014 with an option
to renew for an additional 3 years. In accordance with the
lease agreement the amount of $95,000 is payable within
a year , $95,000 is payable in 2013 with a remaining
amount of $32,000 payable in 2014.
The Company recognized $409,000 as a rental expense
in the statement of comprehensive loss.
2011 AnnuAl RepoRt
62/
(b) Finance lease liabilities
No later than one year
Later than one year and not later than five years
Included in the financial statements as:
- current
- non-current
minimum future
lease payments
Present value of minimum
future lease payments
december 31, 2011
december 31, 2011
16,799
7,573
24,372
16,799
7,573
16,468
7,509
23,977
16,468
7,509
The finance lease relates to the Mining Fleet Sublease with
a remaining lease term of 21 months expiring September,
2013. Minimum future lease payments consist of seven
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.
29. cOntinGent liaBilities
During the December quarter of 2011 SGO received a tax
assessment from the Senegalese tax authorities claiming
withholding taxes of approximately $24 million relating to
interest paid to SGML Capital under the Mining Fleet Lease
facility, director’s fees and services rendered by offshore
companies. SGO responded to the tax assessment includ-
ing evidence supporting treatment of withholding taxes
in accordance with the General Tax Code in Senegal. In
January 2012 the tax assessment was re-confirmed by the
Senegalese tax authorities. We have reviewed the alleged
breaches identified by the Senegalese tax authorities with
our legal counsel and are confident that they are without
merit and that these issues will be resolved with no or an
immaterial amount of tax due. As a result, in February 2012
SGO filed a notice to refer the tax assessment to arbitration
in accordance with Senegalese laws. The arbitration ruling
is appealable to the International Court in Paris.
30. 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:
name of venture
Principal activity
Dembala Berola
Massakounda
Senegal Nominees JV – Bransan
NAFPEC JV – Makana
AXMIN JV – Sabodala NW
AXMIN JV – Heremakono
AXMIN JV – Sounkounkou
Bransan Sud
Sabodala Ouest
Saiansoutou
Garaboureya North
Gold exploration
Gold exploration
Gold exploration
Gold exploration
Gold exploration
Gold exploration
Gold exploration
Gold exploration
Gold exploration
Gold exploration
Gold exploration
exploration commitments and contingent liabilities
Exploration commitments and contingent liabilities arising from the Company’s interests in joint ventures are
disclosed in Notes 27.
interest
2011
%
100
100
70
80
80
80
80
100
100
100
75
teranga gold corporation / notes to consolidated financial statements
63/
31. cOntROlled entities
controlled entities consolidated
Teranga Gold B.V.I. (i)
Teranga Gold (USA) Corporation
Sabodala Gold (Mauritius) Limited (iii)
SGML (Capital) Limited
Subsidiaries of Sabodala Gold (Mauritius) Limited:
Sabodala Mining Company SARL (ii)
Sabodala Gold Operations SA (ii) (iii)
(i)
Teranga Gold (B.V.I.) Corporation, a wholly owned
subsidiary of Teranga Gold Corporation, was incorpo-
rated 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. A sufficient number of directors
representing SGML (the Mauritius holding company)
Cash at bank
Short-term investments with maturity less than 90 days
total cash and cash equivalents
country of
incorporation
Percentage owned
2011
B.V.I.
USA
Mauritius
Mauritius
Senegal
Senegal
100
100
100
100
100
90
were elected to the board of directors of SGO, in
addition to the two resident directors with executive
responsibility, to ensure adequate representation at
all board meetings, the minority shareholder (Repub-
lic 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.
32. 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 state-
ment of financial position as follows:
as at december 31, 2011
5,780
1,690
7,470
2011 AnnuAl RepoRt
64/
(b) Reconciliation of change in Working capital
changes in working capital
Increase in trade and other receivables
Increase in other assets
Increase in inventories
Increase in trade and other payables
Increase in provisions
net change in working capital
15 months ended
december 31, 2011
(18,707)
(10,062)
(20,624)
20,015
258
(29,120)
(c) non-cash Financing and investing activities
(a) capital Risk management
On November 23, 2010, Teranga acquired the Sabodala
gold mine and a regional exploration land package together
with 15% (December 31, 2011:13.76%) of Oromin Explora-
tion 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 the C$50 million
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
$3 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 $3 million are restricted and must always
remain in the Proceeds Account, while the Facility Agree-
ment remains in place.
33. Financial instRUments
The Company’s risk exposures and the impact on the Com-
pany’s financial instruments are summarized below:
The Company’s objectives when managing its capital are to
safeguard the Company’s ability to continue as a going con-
cern 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.
Management believes that the cash and cash equivalents
at December 31, 2011, together with expected future cash
flows from operations is sufficient to support the Company’s
liquidity requirements. To provide additional financial
flexibility, in December 2011, the Company reached an
agreement with Macquarie Bank Limited to defer 28,000
ounces that were due for delivery on February 17, 2012
until later in 2012. The deferral of scheduled first quarter
deliveries into hedge contracts allows the Company to sell
all of its first quarter gold production at higher spot gold
prices, allowing the Company to rebuild its cash balance.
Once the mill expansion is complete, the production rate is
expected to rise and cash cost of production are expected
to fall improving cash margins. The improved cash margins
combined with expected higher production should allow the
Company to increase its cash balance through the year.
The leverage ratio as at December 31, 2011 was as follows:
as at december 31, 2011
Borrowings
Cash and cash equivalents
Short-term investments
Net cash
Equity attributable to the shareholders
Net cash to equity ratio
(23,977)
7,470
593
(15,914)
313,562
-5%
teranga gold corporation / notes to consolidated financial statements
65/
(b) categories of Financial instruments
As at December 31, 2011, the Company’s financial instru-
ments consisted of cash and cash equivalents, restricted
cash, trade and other receivables, trade and other payables,
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, 2011:
as at december 31, 2011
Financial assets:
Loans and receivables
Cash and cash equivalents
Restricted cash
Short-term investments
Trade and other receivable
Assets at fair value through profit or loss
Financial derivative assets
Available-for-sale
Available-for-sale financial assets
Financial liabilities:
Other financial liabilities at amortized cost
Borrowings
Trade and other payables
Liabilities at fair value through profit or loss
Financial derivative liabilities
(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
derivative Fnancial instruments
Financial derivative assets:
Oil hedge contracts
Disclosed as:
Current
Non-current
Financial derivative liabilities:
Gold flat forward contracts
Disclosed as:
Current
Non-current
7,470
3,004
593
20,447
2,820
19,800
23,977
43,238
129,559
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 hedge contracts to reduce exposure to unpredictable
market fluctuations. The Company has elected not to apply
hedge accounting for these instruments.
as at december 31, 2011
2,820
2,288
532
129,559
79,241
50,318
2011 AnnuAl RepoRt
66/
Gold Forward contracts and Oil Hedge contracts
Within 1 year
Between 1 and 2 years
total
Forward
Ounces
$/ounce Fair Value
contracts
BBl
$/BBl Fair Value
108,500
66,000
837
807
79,241
50,318
80,000
20,000
70
70
2,288
532
174,500
826
129,559
100,000
70
2,820
At December 31, 2011, the gold spot price was $1,566/oz
and the oil price was $98.8/bbl.
As the Company has elected not to adopt hedge account-
ing, movements in the fair value of these contracts are ac-
counted for through the statement of comprehensive loss.
Gold forward contracts
Profit or loss
Other equity
Oil hedge contracts
Profit or loss
Other equity
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 reason-
ably possible change.
Financial assets
as at december 31, 2011
Financial liabilities
as at december 31, 2011
–
–
978
–
27,289
–
–
–
(d) Foreign currency Risk management
The Company has certain financial instruments denomi-
nated in CFA Franc, CAD, AUD, EUR and other currencies.
Consequently, the Company is exposed to the risk that the
exchange rate of the USD relative to the CFA Franc, CAD,
AUD, EUR 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, CAD, AUD, EUR 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:
CAD
CFA Franc (XOF)
AUD
EUR
Other
Financial assets
as at december 31, 2011
Financial liabilities
as at december 31, 2011
2,627
4,494
837
189
963
2,204
23,118
3,809
6,357
1,449
Foreign currency sensitivity analysis
The Company is mainly exposed to CFA Franc, CAD, AUD
and EUR. Ten percent represents management’s assess-
ment 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.
teranga gold corporation / notes to consolidated financial statements
cad impact
Profit or loss
Other equity
cFa Franc (xOF) impact
Profit or loss
Other equity
aUd impact
Profit or loss
Other equity
eUR impact
Profit or loss
Other equity
67/
Financial assets
as at december 31, 2011
Financial liabilities
as at december 31, 2011
263
449
84
19
220
2,312
381
636
Foreign currency exchange contracts
(e) interest Rate Risk management
The Company has not entered into forward exchange con-
tracts to buy or sell specified amounts of foreign currencies
in the future at stipulated exchange rates.
Financial assets
Cash and cash equivalents
Short-term investments
Restricted cash
Financial liabilities
Borrowings
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, 2011.
as at december 31, 2011
7,470
593
3,004
11,067
23,977
(12,910)
The Company’s interest rate on its borrowings is calculated at LIBOR plus 3% margin.
interest Rate sensitivity analysis
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:
Profit or loss
Other equity
Financial assets
as at december 31, 2011
Financial liabilities
as at december 31, 2011
55
–
120
–
2011 AnnuAl RepoRt
68/
(f) credit Risk management
(g) liquidity 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 Australian Government.
The Company does not have significant credit risk exposure
on accounts receivable as all gold sales are executed
through Macquarie Bank, an AAA rated bank. Gold produc-
tion 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 sub-
sidiaries. 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 $1.4 million was held at
Senegal banks as at December 31, 2011.
Liquidity risk is the risk that the Company will not be able
to meet its obligations as they fall due. The Company
monitors its risk of a shortage using projected cash flows
and by monitoring the maturity of both its financial assets
and 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 op-
erational 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
Australian Government.
liquidity tables
The following tables detail the Company’s remaining con-
tractual maturity for its 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
average effective
interest rate
%
due on
demand
due one to
three months
due between
three months
to one year
due one to
five years
december 31, 2011
Financial Liabilities
Non-interest bearing
Variable interest rate instruments
Fixed interest rate instruments
Derivatives (i)
(i) Expected to be settled through delivery of gold.
–
3.37%
6.00%
–
33,742
–
–
–
33,742
–
2,800
2,707
–
5,507
5,887
13,999
902
79,241
100,029
–
7,573
–
50,318
57,891
Weighted
average effective
interest rate
%
due on
demand
due one to
three months
due between
three months
to one year
due one to
five years
–
–
20,447
–
20,447
–
584
584
–
1,704
1,704
–
532
532
december 31, 2011
Financial Assets
Non-interest bearing
Derivatives (i)
(i) Expected to be settled in cash on a net basis.
teranga gold corporation / notes to consolidated financial statements
69/
(h) Fair Value of Financial instruments
Fair Value Hierarchy
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.
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 state-
ments 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, 2011
Financial assets
Cash and cash equivalents
Short-term investments
Restricted cash
Available-for-sale financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
level 1
level 2
level 3
7,470
593
3,004
19,800
–
–
–
–
2,820
$
30,867
$
2,820
$
129,559
$
$
$
–
–
–
–
–
–
–
total
–
7,470
593
3,004
19,800
2,820
33,687
–
129,559
–
$
$
129,559
$
–
$
129,559
34. 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 Com-
pany 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 for
the period ended on the business day immediately preceding
the day on which the option was granted.
The vesting of options is determined by the board of
directors at the date of grant. The term of options granted
under the Plan is at the discretion of the board of directors,
provided that such term cannot exceed ten years from the
date of the option is granted.
Each employee share option is convertible 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 subject to the terms
of the plan.
During the fifteen months ended December 31, 2011 a
total of 17,980,000 common share stock options were
granted to directors, officers, employees and consultants.
During the fifteen months ended December 31, 2011 a
total of 362,778 options were cancelled. No stock options
were exercised during the fifteen month period ended
December 31, 2011.
2011 AnnuAl RepoRt
70/
The following stock options were outstanding as at December 31, 2011:
Option series
number
Grant date
expiry date
exercise price
FV at grant date
Granted on November 26, 2010
Granted on December 3, 2010
Granted on February 9, 2011
Granted on April 27, 2011
Granted on June 14, 2011
Granted on August 13, 2011
Granted on December 20, 2011
10,268,333
3,225,000
725,000
253,889
455,000
370,000
2,320,000
26-Nov-10
03-Dec-10
09-Feb-11
27-Apr-11
14-Jun-11
13-Aug-11
20-Dec-11
26-Nov-20
03-Dec-20
09-Feb-21
27-Apr-21
14-Jun-21
13-Aug-21
20-Dec-21
c$
3.00
3.00
3.00
3.00
3.00
3.00
3.00
c$
1.19
1.19
0.99
0.80
0.94
0.82
0.61
As at December 31, 2011, approximately 7 million options
were available for issuance under the Plan.
The stock-based compensation expense for the fifteen
months ended December 31, 2011 was $12.4 million.
The estimated fair value of stock options is amortized over
the period in which the options vest which is normally three
years. For those options which vest on single or multiple
dates, either on issuance or on meeting milestones (the
“measurement date”), the entire fair value of the vesting op-
tions is recognized immediately on the measurement date.
Of the 17,980,000 common share stock options issued
during the fifteen months ended December 31, 2011,
17,805,000 vest evenly over a three-year period and
175,000 vest based on achievement of certain milestones.
The fair value of options that vest upon achievement of
milestones will be recognized as milestones are achieved
and the value can be reasonably measured.
As at December 31, 2011 all outstanding stock options
have a remaining contractual life of ten years.
Fair Value of Stock Options Granted
The fair value at the grant date was calculated using Black-
Scholes option pricing model with the following assumptions:
Range of grant date share price
Exercise price
Range of risk-free interest rate
Volatility of the expected market price of share
Weighted average expected life of options
Dividend yield
Forfeiture rate
15 months ended
december 31, 2011
C$2.14 – C$3.00
C$3.00
1.01% – 2.22%
53%
3.44
0%
6.39%
Volatility was determined using the industry average for
comparable-size mining companies due to lack of historical
information for the Company.
Movements in Shares Options During the Period
The following reconciled the share options outstanding
at the beginning and end of the period:
Balance at beginning of the period – October 1, 2010
Granted during the period
Forfeited during the period
Exercised during the period
Expired during the period
Balance at end of the period – december 31, 2011
Number of options exercisable – December 31, 2011
2011
number of options
–
17,980,000
(362,778)
–
–
17,617,222
5,133,604
Weighted average
exercise price
–
C$3.00
–
–
–
c$3.00
teranga gold corporation / notes to consolidated financial statements
Share Options Exercised During the Period
There were no options exercised during the fifteen-month
period ended December 31, 2011.
35. SEGMENT REPORTING
The Company has one reportable operating segment under
IFRS 8 operating segments relating to the gold activity.
Information regarding geographical and customer segments
is presented below.
Republic of Senegal – revenue from gold and silver sales
Republic of Senegal – Other revenue
Mauritius
Toronto
Total
The following is an analysis of the Company’s non-current
assets by geographical location:
Republic of Senegal
Mauritius
Toronto
Total
71/
Geographical Information
The Company operates in two geographical areas, predomi-
nantly in Senegal (West Africa) and Mauritius.
The following table discloses the Company’s revenue by
geographical location:
15 months ended
December 31, 2011
187,141
39
–
809
187,989
As at December 31, 2011
404,138
4,088
1,075
409,301
Information About Major Customers
Gold sales revenue from one customer for the fifteen months ended December 31, 2011 was $187 million.
36. kEy MANAGEMENT PERSONNEl COMPENSATION
The names and positions held by key management in office as at December 31, 2011:
Directors
Alan Hill
Richard Young
Christopher Lattanzi
Oliver Lennox-King
Alan Thomas
Frank Wheatley
Senior Management
Alan Hill
Richard Young
Yani Roditis
Kathy Sipos
David Savarie
Macoumba Diop
Mark English
Martin Pawlitschek
Bruce Van Brunt
Executive Chairman and CEO
President and CFO
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Executive Chairman and CEO
President and CFO
Vice President, Operations
Vice President, Investor and Stakeholder Relations
Vice President, General Counsel and Corporate Secretary
General Manager and Government Relations Manager, SGO
Mining Operations Manager, SGO
Regional Exploration Manager, SMC
Business Development Manager, SGO
2011 AnnuAl RepoRt
72/
The remuneration of the key members of management during the fifteen months ended December 31, 2011 is as follows:
short term benefits
salary and non-cash
Benefits
Fees(i)
cash
Bonus
equity settled share
based payments –
value vested during
the period
Options
total
for fifteen months ended december 31, 2011
Compensation
3,567
21
435
8,729
12,752
(i)
Salary and fees include consulting payments of $285,000 made to senior management personnel during the initial public offering, which were paid from proceeds
of the IPO at the board approved salary rate.
37. Related PaRtY tRansactiOns
38. aPPROVal OF tHe cOnsOlidated
Financial statements
These consolidated financial statements were approved by
the Board of Directors on February 21, 2012.
(a) equity interests in related parties
Details of percentages of ordinary shares held in subsidiar-
ies 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.
No loans were made to directors or director-related entities
during this period.
(c) transactions with other related parties
The Company has no payable to or receivable from Mineral
Deposit Limited as at December 31, 2011.
shareholdings
The directors representing the Mauritian parent entity
were issued one share each for a total of 0.5% in Sabodala
Gold Operations SA 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 represen-
tative of the relevant Mauritian parent entity or added to
its current 89.5% shareholding according to the circum-
stances at the time.
teranga gold corporation / notes to consolidated financial statements
cORPORate diRectORY
directors
Registered Office
121 King Street West, Suite 2600
Toronto, Ontario, M5H 3T9, Canada
Tel: +1 416-594-0000
Fax: +1 416-594-0088
Email: generalmailbox@terangagold.com
www.terangagold.com
senegal Office
2K Plaza
Suite B4, 1er Etage
sis la Route due Meridien President
Dakar Almadies
Tel: +221 338 693 181
Fax: +221 338 603 683
auditor
Deloitte & Touche LLP
share Registries
canada: computershare trust company
of canada
Tel: +1 800 564 6253
Australia: Computershare Investor
Services Pty Ltd
Tel: 1 300 850 505
stock exchange listings
Toronto Stock Exchange,
TSX code: TGZ
Australian Securities Exchange,
ASX code: TGZ
alan Hill
Executive 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
Executive Chairman and CEO
Richard Young
President and CFO
Yani Roditis
Vice President, Operations
Kathy sipos
Vice President, Investor and
Stakeholder Relations
david savarie
Vice President, General Counsel and
Corporate Secretary
macoumba diop
General Manager
SGO/Government Relations Manager
mark english
Mining Operations Manager, SGO
martin Pawlitschek
Regional Exploration Manager, SMC
Bruce Van Brunt
Business Development Manager, SGO
© Copyright 2012 Teranga Gold Corporation Design and Typesetting: Clear Space, clearspace.ca Printing: Exodus Graphics Corp.
teranga Gold corporation
Suite 2600-121 King Street West
Toronto, Ontario, Canada M5H 3T9
Tel: + 1-416-594-0000
Fax: + 1-416-594-0088
Email: investor@terangagold.com
www.terangagold.com