Good morning, and welcome to Tarango Gold's Conference Call for today, Tuesday, December 10, 2019. As a reminder, this call is being recorded. Your host for today is Trish Moran, Vice President, Investor Relations and Corporate Communications. Ms. Moran, please go ahead.
Thank you, and good morning, everyone. Thank you for joining us to discuss today's announcement. Before we get started, I would ask everyone to view Slides 23 of the Masala acquisition presentation to view our cautionary language regarding forward looking statements and other important disclaimers. In particular, I would like to point out the language around historical reserves found on Slide 3. It highlights the fact that the reserves in the Massawa feasibility report must be referred to by Taranga as historical because the reserve estimate predates the acquisition.
The Masala acquisition slide deck is available on our website at tarangagold.com. To provide you with more details on today's announcement, you will hear formal remarks from Richard Young, Teranga's President and CEO Paul Chowren, our COO and Navin Guile, our Chief Financial Officer. Following their remarks, we will open up the call for your questions with the wider management team. And now over to Richard.
Well, thank you, Trish, and welcome, everyone. Let's begin with Slide 5. Today marks the next key milestone in Taranga's repositioning into a low cost mid tier gold producer. We're very pleased to announce that we have signed a definitive agreement to acquire Vericold's Masfot Gold Project. This acquisition is transformational for Teranga.
Maswa is a high grade open pit project located beside our flagship South Dallas gold mine. But by combining the two assets, we can significantly reduce the initial capital cost outlined in the MassHealth feasibility study that was published by Barrick in July of this year. It offers Taranga shareholders an unparalleled opportunity for both near and long term value creation. Turning now to Slide 6. On its own, Maslow has a historic mineral reserve base of 2,600,000 ounces at just under 4 grams per ton, and this is all open pit.
It's located within 30 kilometers from our Sabodala plant, creating the opportunity for significant capital and operating synergies. We're targeting starting processing of the free milling ore from Maswa at the Sabodala plant in the second half of next year. And we anticipate that this will require minimal infrastructural development. As a result, the Sabodaw Masua complex becomes a top tier mine with increased production, cash margins and free cash flows and the acceleration of Teranga's repositioning as a low cost mid tier gold producer. Turning to Slide 7.
As announced, Taranga has acquired agreed to acquire the 90% interest in Masua from Barrick and its local Senegalese joint venture partner. The remaining 10% will be owned by the government of Senegal. The $380,000,000 upfront consideration is fully funded through a combination of debt and equity. Tableau Corporation, controlled by David Memran, our largest shareholder, will invest a further $45,000,000 through a private placement to retain 21% interest in Taranga post acquisition. Barrick, together with its joint venture partner, will be issued $80,000,000 in Teranga common shares.
On a pro form a basis, Barrick will own just over 11% of Taranga and be entitled to nominate 1 director. There's also the possibility of a contingent payment 3 years out if gold prices average more than $14.50 per ounce. The transaction, which is expected to close in the Q1 of next year, is conditional upon receiving the Maswa exploitation license, the residual exploration license and certain other government acknowledgments and approvals, including our plans to integrate the Sabodala Maslow Complex. Now this is very similar to the OJBG transaction that we completed in 2014. Let's turn to the map of our West African asset base shown on Slide 8.
Taranga has 2 producing gold mines and attractive organic growth pipeline. The close proximity of Masswood to Sabodala creates a unique opportunity to quickly move a coveted high grade open pit project into production with significantly less capital than anticipated for the standalone Maswa project. Maswa is a logical fit for Teranga's asset base and accelerates our vision to become a low cost mid tier gold producer. And now over to our COO, Paul Chowren, to give you an overview of the Maslow project and the anticipated synergies and potential upside of this acquisition. Paul?
Thank you, Richard. Turning to Slide 10. Massawa is one of the highest grade undeveloped open pit gold projects in Africa. At 2,600,000 ounces and nearly 4 grams of gold per ton in the historical reserves, it represents an exceptional long term addition to the Sabadella complex with near surface open pit mineable deposits, immediate access to high grade free milling oxide ore, high grade refractory ore at depth to be blended in future years and exploration upside both in the existing resources as well as additional prospects delineated by the Barrick team. Turning to Slide 11.
As a standalone project based on the feasibility study, Massawa has a 10 year mine life with annual average production of 200,000 ounces at a low cost. At a gold price of $1400 per ounce, the project demonstrates an NPV of 677,000,000 dollars and a 41% after tax internal rate of return. These standalone numbers are indicative of what Barrick was going to do. However, this will change as we plan to integrate with Sabodala. All in all, Masa was a large high grade low cost project in a supportive gold jurisdiction.
It is a logical fit for Sabadella. Turning to Slide 12. After being in production for 10 years, as of the beginning of this year, Sabodala still has 2,400,000 ounces of gold reserves, a 13 year mine life and a large resource base. Further, Sabodala has a history of strong operational performance with 3 consecutive years of record production. Last year, production rose by 5% to just over 245,000 ounces and beat the low end of cost guidance and generated $50,000,000 in free cash flow.
Through the end of the third quarter, Sabadella's year to date results remain equally robust with strong production and free cash flow of 69,000,000 dollars For 2019, we are on track to achieve the high end of production guidance, the low end of cost guidance and delivered record free cash flow. This is a testament to the strong operating team we have at Sabodala. It is anticipated that MassaOne and Sabadella together create the opportunity for significant capital and operating synergies on a pro form a basis, which will create a top tier gold mine. Slide 13 outlines 5 of these key areas. By far, the biggest opportunity is reducing the initial capital costs as outlined in the Maslow feasibility study.
Sabodala is a multi open pit operation that feeds into a central plant. The plan is to extend the already existing haul road that runs south from our plant towards the Massawa property, truck the ore and blend it with our Sabadella ore. We anticipate significant synergies relating to operating costs, lower mine operating costs given we operate our own mine fleet and lower unit processing costs and G and A. The G and A is a significant savings from the Masala feasibility study because we already have an operating line and social programs in place. This is truly a unique transaction and one that has the potential to realize meaningful capital and operating synergies.
Looking at Slide 14. Sabadella currently mines between 35,000,000 and 40,000,000 tonnes of material and processes over 4,000,000 tonnes of ore per year. Taranga plans to integrate the high grade ore from Masala deposits into an optimized combined mine plan, leveraging Sabadell's existing infrastructure, plant, mobile equipment and personnel. We are targeting to start processing free milling ore in the second half of twenty twenty. We expect that the initial cost to develop the first of the Masala deposits is in the order of magnitude of between $5,000,000 $10,000,000 primarily for extending the existing haul road and building site infrastructure at Massawa.
It is anticipated that by 2021, more than half of the ore processed through the Sabodala plant could potentially be sourced from the high grade Massawa deposits. Taranga and Barrick completed significant due diligence to gain a better understanding of the technical details of the Masawa ore bodies as they relate to the potential integration with Sabodala. We intend to complete a pre feasibility study on the combined complex to develop an optimized integrated mine plan within 6 months of transaction closing, followed by a definitive feasibility study in 2021, which will optimize the size and timing of the refractory plant. Turning to Slide 15. In the Massawa feasibility study, approximately 80% of the ore was to be processed through a whole ore leach or CIL carbon and leach method.
Approximately 20% of the remaining ore was to be processed through a BIOX facility. The bio oxidation process is a well established method for processing some types of refractory ore and is currently being used successfully in other operations around the world. Taranga plans to optimize the overall gold recovery of the refractory ore at Massawa. Adding a buyouts recovery stream to the Sabodala plant at a future date and minor modifications to the current CIL plant are the only major growth capital projects required to optimize integration of the Massawa project. By extending the mine life, additional sustaining capital will be required with the largest amounts being for replacement of the existing mobile equipment fleet and additional tailing storage costs.
Turning to Slide 16. An additional aspect of the Maso project that may not be well known to the market is the exploration opportunity. Based on our due diligence, we believe there is an opportunity to extend the existing Maslow resources at depth and along trend. Considerable exploration opportunity remains along extensive regional structural trends and in the corridor between 2 shear zones where secondary structures are known to host gold mineralization. Once the transaction closes, we plan to commence an exploration drill program for both additional free milling and refractory ore bodies.
And with that, I will hand over to our CFO, Navin Dyle.
Thank you, Paul. Turning to Slide 18, this acquisition is fully funded. We evaluated several financing options and our priority was to minimize shareholder dilution and maintain balance sheet flexibility. The upfront consideration totaled 380,000,000 dollars of which approximately $80,000,000 will be paid in Taranga shares and $300,000,000 will be paid in cash. Of that, $225,000,000 is part of a 3 year acquisition debt facility from Taurus Funds Management with Barrick participating for $25,000,000 as part of the lending syndicate.
Dollars 45,000,000 is from a private placement with Capelo and $30,000,000 is from the $106,000,000 equity financing. The remaining $76,000,000 in proceeds are intended to be used for transaction related costs, reserve development and exploration drilling across our portfolio of properties and for working capital purposes. Completion of the acquisition facility, the equity offering and the private placement are all interconditional upon completion of the transaction. The Torus facility has an upfront fee of 2.75%, bears interest at 7.85 percent per annum on the drawn amount paid quarterly in arrears and allows for early repayment at any time without penalty. Quarterly repayments of the acquisition debt facility begin July 2020 are determined based on excess free cash flow available after repayment of the Wahgnion debt facility and interest accruing on both facilities.
Any unpaid principal is due December 31, 2022, the same maturity date as the Wahgnion debt facility. Torus will be granted 4,000,000 4 year call rights at a strike price equal to 120% of the 5 day VWAP. The acquisition facility also includes an offtake arrangement on Maslow's life of mine gold production with the Avaya provision. There is also the possibility of contingent consideration 3 years post completion of the transaction. However, this only comes to fruition if the average gold price over that time period exceeds $14.50 per ounce.
Our long time partner at Sabodala, Franco Nevada is not participating in this acquisition and as a result the stream does not apply to Masala. As Franco Nevada cannot be disadvantaged through this process, we will continue to make gold deliveries based on the standalone Sabodala mine plan. You may recall the fixed term of the stream ends this month and we moved to a much lower cost variable stream. Accordingly, on a per ounce basis, the cost of the stream on Sabodala will drop by more than half. Turning to Slide 19.
Based on the pricing of the equity at CAD5.10 per share, Teranga shares outstanding increases to 167,400,000 dollars Our current debt on the balance sheet as of the end of September together with the debt to fund this transaction brings the pro form a total to about $414,000,000 Our debt load is very manageable and depending on the gold price can be paid down quickly with strong free cash flow coming from our 2 operating mines. Our cash position following the close of the transaction will increase by $76,000,000 giving us ample financial flexibility. Turning to Slide 20. This is truly a transformational acquisition. More important than the positive top line impact is our expectation that this acquisition will contribute to even stronger growth in our financial metrics due to the high grade nature of the Massaro project combined with the capital and operating synergies.
The fundamental improvement in the quality of our asset base should result in an improvement in our financial metrics, which should translate into better multiples, including price to net asset value and price to cash flow per share compared to our peer group. Teranga currently trades just under 0.6xNAV. We believe post this acquisition, factoring in the synergies and value creation opportunities, we will be rated higher. Turning to Slide 21. As Paul described, our ability to quickly integrate the high grade ore from Massawa with little capital is expected to not only improve our production profile, but more importantly, from my perspective, improve margins and cash flow, both on a per ounce basis
and
on a gross basis from higher volumes. Even before putting any drills to work, this acquisition significantly extends and improves our mine life beyond the current 30 to 13 year mine life. As a result, we would expect to see pro form a production, reserve grade and reserves move to the right on this chart versus our peers, while all in sustaining costs should move to the left, making us a lower cost producer. And now back to Richard to wrap things up.
Well, thank you, Navin. Turning to Slide 23. I want to leave you with one more important point. Over the last 3 years, we have developed a very attractive organic growth pipeline of assets, including Leon, which just achieved commercial production Golden Hill, our most advanced exploration project, which is moving into the feasibility stage of development and our prospective early stage exploration properties in Cote D'ivoire. This acquisition does not take away from our focus on growing and executing on this pipeline.
And in fact, with the additional cash that we're raising, it enhances our ability to move this pipeline forward. We've given you a lot of information to digest in a short period of time. So let's now open the line up for questions. Operator?
Your first question comes from Blaine Lam of RBC Capital Markets. Your line is open.
Hey, morning guys. Just had a question on the timeline. You guys are looking at First Gold in second half of next year and coming out with a PFS within 6 months of the close. So I assume you guys are anticipating producing before the PFS and the DFS next year in 2021?
Yes. So the access to the Sofia deposit is free milling and the oxide ore as well. And so all that's really required is a road as well as some site infrastructure. Secondly, for the oxide ore, which is maybe year 2 when we start, all we really need is just some small infrastructure to the current plant. And then down the track, the integration of the refractory ore through BIOX, that's where a lot of the engineering will be required.
So that's the need for the pre feas and the definitive feasibility study that we'll have before we build. Accessing the initial stages of the ore doesn't require that amount of technical work.
Okay, thanks. And then just want to confirm, like from a permitting standpoint, it's fully permitted. And in terms of the capital elements outlined some of the replacement fleet panels capacity, what kind of quantum are we anticipating in terms of the initial spend needed to get it to production?
Okay. Well, I'll take that. And then on the permitting, I'll hand it over to Dave Savory, our legal counsel. So just on the capital, as I said, it's really just access to a road, which is minimal cost infrastructure. So I'll just say order of magnitude, dollars 5,000,000 to 10,000,000 dollars range.
And then for the oxide ore, there is a little bit of water treatment required and there's also a likelihood of a gravity circuit to be determined in the pre fees, which would then be in the order of magnitude of $20,000,000 to $30,000,000 we figure potentially. And we need to be careful because there is some technical studies that are required to determine those exact numbers. In terms of our own infrastructure and our own mining fleet, so we already have a permitted TSF-two. We are already raising TSF-one even as it is. We have an abundance of permitted tailings capacity, but that won't actually the TSF-two need to be built down the track.
And then because we're extending the mine life, we do need to replace some of the older equipment in due course as time goes on. And in terms of total material movement, we expect it to be as approximately as much as we mine now or slightly less in terms of total material movement.
Yes. In the back of the beginning part of your question, the Maslow properties, it's currently an exploration permit, but Barrick applied for a mining license earlier this year. We expect to receive that in due course. That is one of the conditions of the transaction. We're already in discussions with Barrick, with the government.
They do not foresee that to be an issue, but that is one of the closing conditions.
Okay. And then just last one for me. How much test work are you guys or has been done on the metallurgy in terms of blending? And in terms of the capital components, is there also something required to handle the arsenic content of the Massaro ore?
Yes. So just in terms of test work, Barrick has done extensive, extensive test work on a number of different processing methods. And finally, over the course of time landed on the BIOS process and has done extensive test work on that as well. The other part of your question sorry, what was the second part of your question?
Just in terms of handing the arsenic.
The arsenic and the blending, I'm sorry. So yes, so we have looked at a number of different flow sheet concepts that will be part of the pre feasibility. And then as far as the arsenic goes, it's really just a water treatment and a precipitate out into a solid and we don't expect that to be a problem and Barrick as well has done quite a bit of work on the water treatment.
Okay, great. Thanks. That's all for me. Congratulations on the transaction.
Thanks,
There are no further questions. This concludes our conference call for today. Please disconnect your lines and have a good day.