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Tossing up ASX-listed African gold stocks? Here’s the ultimate, only guide you’ll ever need

In recent years attitudes towards African mining stocks have arguably changed as investors have become more risk averse and sensitive … Read More
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This article was originally published by Stockhead

In recent years attitudes towards African mining stocks have arguably changed as investors have become more risk averse and sensitive to both ESG and geopolitical risk.

The words “Tier 1 jurisdiction” are becoming more prominent in the lexicon of gold majors, a turn of phrase that appears to value projects in developed nations like Australia and Canada over “riskier” jurisdictions like Africa and the Pacific.

But with Australian gold miners facing rising costs, a stagnant gold price and struggling to find traction in equity markets, some mid-tier miners in West Africa have punched above their weight in 2021.

According to Euroz Hartleys, the two lowest cost mid-tier gold miners in the September quarter could be found there – West African Resources (ASX:WAF) with its new Sanbrado mine in Burkina Faso and Perseus Mining (ASX:PRU), which recently opened the low cost Yaoure mine in Cote d’Ivoire.

Simon Taylor, the managing director of Malian gold explorer Oklo Resources (ASX:OKU), says investors who count West Africa out could be sleeping on the next major gold discovery.

“It’s been easy to invest in the West Australian gold space and some of the Canadian space over the last four or five years,” he told Stockhead.

“For investors, I think what you’re getting from Oklo and from other companies is huge upside on very large deposits that can be found, and that’s why we’re there.”

 

African gold stocks = incredible value on offer

The next gold producer in line appears to be Tietto Minerals (ASX:TIE), which this week completed an $85 million equity raising to secure funding for the US$200 million Abujar gold mine in Cote d’Ivoire.

Tietto was trading at just 6c a share in early 2019 before a string of high grade, shallow gold hits saw the explorer increase its gold bounty by 146% to 1.7Moz in the space of a couple months.

After two years of sustained drilling success Abujar now contains 3.4Moz, and Tietto plans to produce its first gold bar in the fourth quarter of 2022.

At 42c and a market cap of $195 million Tietto is a long way from where it once was.

But with a post-tax NPV of US$722 million and IRR of 95%, it’s not hard to imagine the market may price the same thing at a higher premium if it were out the back of Kalgoorlie.

“You always need to challenge your biases or your views,” Tietto executive director Mark Strizek said.

“And that’s one of the things that I love explaining is that Africa isn’t what we think it is.

“In some areas, I’d probably say the Ivoirian phone network is better than it is in Australia. So you’ve got to leave your biases and preconceptions behind.

“We know where we stand and we’re really excited about the opportunities and I think that’s where shareholders need to have a look at that as well.

“I think we probably are moving into an area that as the valuations in Australia start hitting the peak, this is where the opportunities lie.

“There is an incredible amount of headroom or uplift to come on valuations from obviously us getting into production and also for the established producers as well.”

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Looking for multi-million ounce potential

As Tietto has shown, new discoveries in West Africa can be large and drilled out at a fast click.

$70 million capped Oklo is not at the same stage as Tietto, but its initial resource for the Seko deposits at its Dandoko project of 11.34Mt at 1.83g/t for 668,500oz should be a launching pad for further resource growth.

It has since enjoyed some high grade hits from its Disse prospect and has started a 9000m drilling program to grow the Seko resource, which will continue into next year.

Dandoko is located within the Kenieba Inlier of west Mali, between B2Gold’s 7.1Moz Fekola mine and Barrick’s world class 17.9Moz Loulo-Gounkoto mining complex.

Oklo secured 500km2 of tenure between the two giant gold mines, and even though Dandoko is further from the famed Senegal-Mali Shear Zone, Taylor says the Australian explorer is finding the same mineralising systems.

With scoping studies and resource drilling both underway, Taylor said Oklo’s aim is to uncover something of million-ounce potential or better.

“Rule of thumb on these projects is a 10-year mine life. If you hit the 10-year mine life, over 100,000 ounces a year, that’s what we want to get to,” he said.

“So that’s that million-ounce mark, which we’re aiming for, and we want to ensure that is constrained and modelled and robust.

“But the ultimate prize from there is to find the multi-million ounce potential which we think the area has, and we know it has from what our neighbours have found over the last few years.”

 

Top African producers deliver on costs

In recent times major mining discoveries in mature mining destinations like the WA Goldfields have increasingly been made under deep cover.

On the other hand, many recent discoveries in the relatively under-explored West African gold fields like the Senegal-Mali shear zone and Birimian greenstone belt have been made close to surface with big oxide components.

Lower pre-stripping and processing costs often mean the early years of new West African mines like Sanbrado are cheaper, providing early cashflow to pay back capex quickly.

Tietto’s Abujar is expected to produce 260,000oz at sector-low costs of just US$651/oz in its first year, and 200,000ozpa over its first six years at an average AISC of just US$804/oz.

While that could come apart in execution, Strizek says recent history has shown some of the cheapest operators are in West Africa.

“I think in terms of the cheapest cost production, it’s obviously WAF and where we’re looking at our first year, and the first six years, we’re right up there,” he said.

“So (Africa’s) very, very competitive. And I think that’s one of the keys that as investors you run the ruler over.

“You’ve got to look at the track records of Perseus and obviously now WAF and at Tietto we’ve tried pretty hard.

“We’ve secured a fantastic build team that we’ve got fresh out of the Sanbrado build working for us and we’re running very, very hard to get this thing up and running for Q4 next year.”

Like Strizek, Taylor believes investors will move into African gold companies when they see the success many are having building large gold deposits.

It was not so long ago that Papillon Resources, an Australian company run by Oklo chairman Mark Connelly, sold along with the Fekola deposit to B2Gold for $600 million in 2014.

Taylor pointed to the $181 million takeover by Ramelius Resources (ASX:RMS) of gold explorer Apollo Consolidated (ASX:AOP) and its 1.1Moz Rebecca gold project near Kalgoorlie as an example of the premiums being offered in WA.

“You can see with the recent takeover of Apollo and other assets in WA, if some of these (African) assets were in Western Australia, the market cap and valuation would be a lot higher I think,” Taylor said.

“I think the investment appetite will come back, it always does.

“There’s fantastic geology where we are, it’s very under-explored and you’ve seen some good successes in the last two or three years on companies exploring there.

“The majors are all there and you’ve seen great success stories like WAF, which is now in production and going very well.”

 

What about the political instability?

There have been a number of incidents in recent years that have underlined the risks of operating in Africa.

In the past two years there have been successful coups in Mali and Guinea.

Civil unrest this year in South Africa caused supply chain delays and saw Rio Tinto call force majeure at its Richards Bay mineral sands mine, while resource nationalism agendas can make mining and environmental policies unpredictable.

But the impact of social and political events on mining operations is not always clear cut.

At Abujar, Strizek says Cote d’Ivoire has a modern mining code – just seven years old – and a maturing local industry.

The country has set ambitious targets to increase the share of its GDP that comes from mining.

The Ivoirian Government takes a 10% free carried equity interest in projects like Abujar, but Strizek said it also has a 25% corporate tax rate, well-resourced mining department and sensible environmental approval system.

“They looked around the world and in some instances modelled on the West Australian mining jurisdiction, the good aspects of it,” he said.

“Especially in Cote d’Ivoire you’ve got a mining department that’s resourced, has skilled, professional people that are working for it, and you can get decisions made.

“There’s a very good mix of professionals and good contractors operating in country as well.

“And it’s without the cost pressure and inflationary aspects we’re seeing here, especially in Western Australia, you just don’t have that. There’s a large pool of workers and a large pool of contractors that are eager to do business with you.”

Taylor notes Oklo continued to operate following the 2020 Malian Coup and even after Mali’s previous coup in 2012, Connelly’s Papillon continued to drill Fekola into a world class resource worth over half a billion bucks.

“There was a coup in Mali last year (and) it hasn’t affected any of our operations,” he said.

“It hasn’t affected any of the gold mines. We’re getting on with business as usual.

“And one of the keys to operating in places like West Africa is really good personnel. And we have some fantastic Malian guys involved, in particular our director in country Madani Diallo.”

Outside of Tietto and Oklo there are a number of African gold stocks on the ASX.

We picked out five producers and 13 explorers and three potential IPOs on the lookout for gold on the African continent.

 

PRODUCERS

 

WEST AFRICAN RESOURCES (ASX:WAF)

$1.3 billion capped West African Resources is one of the star gold miners on the ASX right now, and is the poster child for African gold on the bourse, sitting on a 51% gain over the past year.

Having kicked off production at the Sanbrado mine in Burkina Faso in March 2020 at the start of the Covid-19 pandemic, the company is now one of the lowest cost mid-tier gold producers on the ASX.

It is on track to beat the 280,000oz upper end of its production guidance in its first full year of operations in 2021, and has purchased the 6.8Moz Kiaka mine from B2Gold in the hopes of becoming a 400,000ozpa producer by the middle of the decade.

“We’re in this to make money for our shareholders and stakeholders and the two best performing or the two highest margin producers on the ASX right now are West African gold producers in Perseus and West African Resources,” WAF managing director Richard Hyde told Stockhead this month when asked about operating in Africa.

“It just shows you that new projects over there, they generate a lot of free cash flow early on.

“West Africa seems to me that it is kind of where the West Australian Goldfields were at in the 1980s and ’90s when new discoveries were being made.”

 

RESOLUTE MINING (ASX:RSG)

Resolute is one of the oldest gold mining companies on the ASX and is known as a trailblazer for Aussie gold stocks in Africa, having operated there for three decades.

It now owns the Syama mine in Mali and the Mako gold mine in Senegal, purchased via the takeover of Toro Gold in 2019.

Unfortunately for Resolute that portfolio has not performed as planned in recent years, with the gold miner cutting production guidance for 2021 in August from 350,000-370,000oz at US$1200-1275/oz to 315,000-340,000oz at US$1290-1365/oz.

It recently did bank US$90 million from the sale of its mothballed Bibiani gold mine in Ghana, having sold the Ravenswood gold mine in Queensland to EMR Capital and Golden Energy and Resources in January 2020.

$408m-capped, 38c a share, Resolute has lost 80% of its value over the past two years having hit a five-year peak of $2 in August 2019.

 

PERSEUS MINING (ASX:PRU)

While Resolute has been on the decline, fellow West African mid-tier Perseus has been moving in the other direction.

It is now the most valuable primary ASX-listed African gold miner with a market cap of ~$2 billion.

Up almost 200% over the past five years and 25.75% YTD, Perseus has been rewarded for consistent EBITDA growth in recent years.

Its Edikan, Sissingue and Yaoure mines in Ghana and Cote d’Ivoire delivered record quarterly gold production for Perseus of 112,786oz at a weighted all in cost of US$966/oz in the September quarter.

That came after a 2021 financial year which saw the growing gold miner deliver a 1.5c maiden dividend, 9.5 years after declaring commercial production from its first mine Edikan.

Perseus says it is on track to become a 500,000ozpa producer from organic sources, but is also facing questions on whether it will buy out competitors in order to grow faster.

“In terms of the potential to implement step changes in our ambitions by merging Perseus with other companies, this possibility is ever present, and we continue to search for opportunities that will achieve our strict investment criteria and enhance the overall value of our asset portfolio and our organisation,” managing director Jeff Quartermaine said at Perseus’ AGM last Thursday.

“I have said many times, that it is easier to talk about these things than to implement.

“To those who are anxious that Perseus will ‘miss the boat’ in the area of consolidation, let me say that we have not missed any opportunities that we have set our sights on in the past and the results of our selectivity speak for themselves – look no further than the value created for all shareholders by the acquisition of Amara and its Yaouré Project several years ago.”

 

FIREFINCH (ASX:FFX)

Firefinch is up a whopping 239.47% year to date, making the relatively new gold miner a $600 million company.

It was more before a sell-off following the announcement of a Share Purchase Plan on Thursday conducted at 58c, a discount to its 70c price on Wednesday.

That SPP was hardly bad news though, with Firefinch accepting $51 million worth of bids for what was intended to be a $25 million SPP owing to the massive demand from existing sharholders.

That is no doubt a vote of confidence in its plans to return the Morila gold mine in Mali to its former glory.

Firefinch paid just US$28.8 million for the mine, owned by AngloGold and Barrick, which has produced upwards of 7Moz since opening in 2000.

It was once known as Morila the Gorilla for the astonishing grade and scale of the Morila Super Pit, which was at its peak a 1Moz producer.

It is currently producing around 50,000ozpa and rising from satellite pits and tailings, but with Firefinch planning to restart mining at the main Morila Pit next year, it plans to make Morila a 100,000oz producer in 2022 with longer term plans to become a 200,000ozpa mine.

Firefinch is also priced for its giant Goulamina lithium project, which will be developed in a joint venture with China’s Ganfeng through a demerged company Leo Lithium.

 

ANGLOGOLD ASHANTI (ASX:AGG)

Primarily listed in America and Johannesburg but dual-listed in Australia where it runs the big Sunrise Dam and Tropicana gold mines.

AngloGold’s attitude towards its home continent has shifted over the years. Formely the gold division of Anglo American it has now sold out of its costly assets in its homeland of South Africa.

But the world’s third biggest gold producer, which merged with Ghana’s Ashanti Goldfields in 2004, still has an expansive portfolio of African gold mines and JVs that delivered 1.6Moz across five operations in 2020.

These include the 600,000ozpa Geita mine in Tanzania, its share in the Kibali JV with Barrick in the DRC, Iduapriem and Obuasi in Ghana, and the 10Moz Siguiri mine in Guinea.


 

EXPLORERS

 

TURACO GOLD (ASX:TCG)

Turaco Gold is run by Justin Tremain and if his history in Africa is anything to go by, he may develop a company worthy of a big money takeover.

Tremain led Exore Resources ahead of its takeover by Perseus Mining last year in a ~$80 million deal, having previously headed Renaissance Minerals before its takeover by Asian gold producer Emerald Resources (ASX:EMR).

Formerly known as Manas Resources, Turaco has undergone a facelift since Tremain and Co. came on board in November last year, driving a near doubling of the West African explorer’s share price.

Turaco describes itself as a leading Cote d’Ivoire explorer. Its investment case rests on the 8350sqkm landholding it has built on the Birimian Greenstone Belt.

That includes the Boundiali and Ferke projects in the northern part of the African nation, 89% owned JVs with Predictive Discovery where Turaco has made high grade discoveries including 20m at 10.45g/t, 30m at 8.3g/t (Boundiali) and 45.3m at 3.16g/t (Ferke).

The Nyangoubue discovery at Boundiali South presents as a runs-on-the-board opportunity, with a maiden JORC resource likely early next year.

It also owns the Eburnea gold project, where a large scale discovery was declared on the basis of auger drilling last month that delineated 4.5km of strike and saw shallow grades of up to 9.91g/t.

Turaco additionally owns the Tongon North gold project, an expansive near-2000sqkm land package abutting Barrick’s 4.5Moz Tongon mine.

In a recent note Far East Capital analyst Warwick Grigor said to “keep this one on your radar” after its shares dipped following a $10 million placement at 12c a pop.

“There seems to be plenty of gold on its licences, judging by assays so far,” he wrote. “The shares have been quite strong since September, but dipped recently owing to the placement.

“Once this has been digested by the market the impending exploration news should help in the resumption of uptrend.”

 

MEGADO GOLD (ASX:MEG)

Dominated by artisanal miners, Ethiopia’s economic reform agenda has seen gold exports skyrocket in 2020 and 2021.

Around 75% of the country’s gold comes from prospectors, who have been encouraged to deliver into the State-owned trading centres so the value of the commodity to the Ethiopian economy can be quantified.

Renowned as a source of the precious metal for the Pharoahs of Ancient Egypt, Ethiopia is on the cusp of re-emerging as a gold exporter.

One Aussie stock riding this theme is Megado, which listed in October last year in a $6m IPO to chase to explore six gold projects in the forgotten region.

The $4.4m microcap says it has had promising results at its Babicho and Chakata projects.

 

PREDICTIVE DISCOVERY (ASX:PDI)

$334 million capped prospect generator Predictive Discovery is up 308.33% in 2021 after hitting the mother lode at its North-East Bankan find in Guinea’s Siguiri Basin.

The Eureka moment arrived when the company struck 46m at 6.58g/t from its Bankan project in April 2020.

PDI released a maiden inferred resource of 72.8Mt at 1.56g/t for 3.65Moz for Bankan at a “discovery cost” of just $4/oz.

The company subsequently dipped last month amid reports questioning the legality of setting up mining operations at Bankan, which sits within the outer buffer zone of the Upper Niger National Park.

Those concerns have dissipated in the month since, with the stock climbing to multi-year highs upwards of 24c.

 

AFRICAN GOLD (ASX:A1G)

Listed in 2019, African Gold shares popped in September after it announced shallow screen fire assays including a hit of 10m at 123g/t gold from its Didievi project in Cote d’Ivoire.

The Evan Cranston and Tolga Kumova backed ~$25 million small cap has since settled back into the 20c a share range.

It owns a swag of six pre-resource projects across the Ivory Coast and Mali. African Gold has been most active at Didievi, where Glencore, Equigold, Lihir and Newcrest all set foot between 2006 and 2011.

The 391km2 project is located in central Cote d’Ivoire on the emerging Oume-Fetekro Birimian greenstone belt, which hosts Allied Gold’s plus-3Moz Bonikro/Hire (+3Moz) and Endeavor’s 1Moz Agbaou gold mine to the south and the recent plus-2.5Moz Fetekro discovery made by Endeavour to the north.

Follow up drilling is set to take place this quarter at Didievi where African Gold has identified a large 1.5km x 1km gold system at the Blaffo Gueto target that it says is open in all directions.

 

POLYMETALS RESOURCES (ASX:POL)

Chaired by metallurgical engineer David Sproule, Polymetals bears the same name as his successful former private explorer, which went public and merged into the ill-fated Black Oak Minerals with Southern Cross Goldfields.

This Polymetals has a different angle to Sproule’s former vehicle, which ran mines across Australia, and listed this year bearing the rights to two exploration licences covering 112km of Guinea’s Siguiri Basin.

Polymetals’ Alahine and Mansala projects are located near the 10Moz Siguiri mine.

Its exploration activities have been unaffected by the coup that saw Guinea’s military take the capital of Conakry a couple months ago, completing its phase 2 exploration program at East Alahine in the September Quarter, comprising 98 drill holes including 94 aircore and 4 Reverse Circulation holes for a total of 7,320m.

 

GOLDEN RIM RESOURCES (ASX:GMR)

Golden Rim Resources boasts a resource of 2Moz at 1.3g/t gold in its Kouri gold project in Burkina Faso and last year acquired the Kada gold project in Guinea, where it is earning the right to own up to 75%.

The project hosts a non-JORC resource in its oxide profile to around 100m deep, and sits just 36km south of AngloGold’s Siguiri mine.

Kada was previously drilled by Newmont, which sunk 33,857m worth of diamond and RC holes, but was considered too small a target for the world’s biggest gold miner.

That’s all good for $22m capped Golden Rim, which is going to undertake a 6500m resource definition RC drilling campaign with the intention of delivering a maiden resource in January next year.

 

MAKO GOLD (ASX:MKG)

Another Ivoirian explorer on the hunt for high grade gold deposits in the West African nation.

Founded by the husband-wife team of Peter and Ann Ledwidge who led Orbis Gold into its $178 million takeover by SEMAFO in 2015, Mako owns the Napie gold project and the Korhogo project adjacent to Barrick’s 4.9Moz Tongon mine.

Located on the same belt as Tietto’s Abujar, Mako this year reached an agreement to take its share in its Napie JV with Perseus from 51 to 90%.

In exchange the leading African mid-tier has become a 5.1% cornerstone shareholder in Mako.

Four prospects are currently being drilled in an expansive 35,000m RC and diamond program at Napie. Like Orbis, Mako is hoping to find a multi-million ounce resource, with maiden numbers due soon for the Tchaga and Gogbala prospects.

 

MARVEL GOLD (ASX:MVL)

Marvel Gold was a struggling African graphite company known as Graphex before it locked down a suite of Malian gold assets to change course.

Marvel recently spun Graphex’s old Chilalo graphite project into a new ASX-listed graphite company, Evolution Energy Minerals (ASX:EV1), which popped on debut and is now worth $51 million to Marvel Gold’s own $45m market cap. Go figure.

Marvel’s own stake in EV1 was worth $25.5 million as of last week, which added to its $5.4 million bank balance values its own 1Moz plus gold inventory at just $11 million.

MVL is sitting on ~1Moz of gold at its ‘Tabakorole’ project in southern Mali, a region which includes Firefinch’s 7.5Moz Morila gold mine and Resolute Mining’s 7Moz Syama gold mine.

It also has a strong pipeline of regional targets, with a mammoth 15,000m auger and 15,000m aircore drill program now underway.

The company is assessing its options with respect to the EV1 investment “to ensure value is maximised for shareholders”, MVl managing director Phil Hoskins says.

The $45m market cap stock is up 10% over the past month, and 54% year-to-date.

MVL had about $5.2m in the bank at the end of the September quarter which, alongside this $25.5m windfall, gives the company plenty of cash to either return to shareholders or sink into exploration/acquisitions.

 

ARROW MINERALS (ASX:AMD)

Formerly focused on Australian exploration projects, Arrow moved into Africa with the takeover of Boromo Gold in 2019.

That brought Boromo’s impeccably named Howard Golden – a geo involved in the Syama and Oyu Tolgoi discoveries – in as chief executive.

Arrow’s focus is in Burkina Faso, where it controls five gold projects including the Dassa gold discovery, where more than 12,500m has been completed with 60% of drill holes intersecting gold above 1g/t.

Arrow controls an unbroken 80km of strike over the Boromo belt, near Ouagadougou and is currently sinking 6000m of RC drilling into the Vranso project including 50 holes at Dassa, Guido, Semapoun and Bantole.

 

AMANI GOLD (ASX:ANL)

Klaus Eckhof’s tiddler Amani Gold owns the Giro Gold Project, just 35km west of the aforementioned Kibali in the DRC.

Amani chairman Eckhof is intimately familiar with the region, having led Moto Gold Mines ahead of the sale of the 22Moz Kibali gold mine to AngloGold and Randgold and previously chaired DRC lithium explorer AVZ Minerals (ASX:AVZ).

Giro hosts the 4.1Moz Kebigada gold deposit, where Amani plans to run a 3500m diamond drilling program over the December and March quarters.

 

BASSARI RESOURCES (ASX:BSR)

Bassari Resources hasn’t traded on the ASX for over a year.

After a board shake-up that saw former South African and Zimbabwean international cricketer and lawyer John Traicos become executive chairman it has been working to revive its Makabingui project in Senegal.

That is the project that needed to be redrilled back in 2017 to ensure it hadn’t been depleted after the mine wasoverrun by up to 50,000 illegal miners “from all parts of Africa”.

This month it said a settlement had been reached over a dispute regarding a finance facility and an MoU has been signed with the Senegalese Government to allow the company’s operating permit to be renewed beyond its initial five-year term in July next year.

Among the terms and conditions, Bassari’s local subsidiary Makabingui Gold Operation SA is required to “immediately re-commence operations at the Project and carry out preproduction works (civil, earthworks, plant construction, mine site preparation) and commence mining in accordance with an agreed schedule of works towards gold production by August 2022.”

 

THETA GOLD MINES (ASX:TGM)

Unlike the other companies in this list Theta Gold Mines operates in a mature gold field in South Africa.

The former Stonewall Resources owns the TGME underground project in the Eastern Transvaal gold fields, near Johannesburg and around 300km northeast of the famous Witwatersrand Basin.

Theta says it dominates the Eastern Transvaal with a 620km2 tenement package covering 43 historical mines and nine mining rights.

The first phase of the underground project would involve the development of three mines – Frankfort, CDM and Beta – with a probably ore reserve of 419,000oz and 3.5Moz of inferred mineral resources beyond that.

A PFS in April said the mine could produce 60,000ozpa from its third year of operations with a 7.67 year mine life at AISC of US$905/oz and a capital cost of US$79m.

South Africa has become a less predictable place to invest in recent times, and Theta has run into some permitting issues with the SA Minister for Forestry, Fisheries and the Environment declaring a forest nature reserve over an area containing 20% of its potential resource base and the first phase of underground mining last month.

Theta shares hit a 12 month peak of 40c early this year but are now down 48% year to date at 17c.

 

WEST WITS MINING (ASX:WWI)

Another South African gold hopeful, West Wits owns the Witwatersrand Basin Project.

A DFS showed its first stage, the Qala Shadows mine could deliver 663,000oz over a glacial 17-year mine life, with a 5.5-year payback period on its US$50 million development costs and peak steady state production of 53,000ozpa over a 10-year period.

The broader WBP would produce 1.57Moz of gold over a 25-year life of mine, with average steady state production of 80,000ozpa over an 18-year period, according to a scoping study.

$62 million-capped WWI has run afoul of environmentalists, who lodged failed objections to its mining approval this year. The company is planning to begin production from an “early mining initiative” at the Qala Shallows in February.

WWI shares have dropped 56.25% over the past 12 months to 3.5c.

 

CHESSER RESOURCES (ASX:CHZ)

Another Mark Connelly-chaired company chasing riches in West Africa, Chesser also counts Oklo MD Simon Taylor as a non-exec director.

The gold explorer has been banging about for a few years, selling the modest Kestanelik discovery in Turkey to a local conglomerate back in 2014 for $40 million.

That made for happy shareholders after a $33 million special payout and left Chesser hunting for a new calling.

It found that in Senegal’s Diamba Sud, a greenfields gold project located on the rich Senegal-Mali Shear Zone.

Chesser last week released a maiden gold resource for Diamba Sud, four years after acquiring the project, of 15.2Mt at 1.6g/t for 781,000oz. That came around 16 months after making the discovery of high grade gold at its Area D target.

Around 69% of those are in the indicated category and, as is common in West Africa, 95% of the ounces are within 135m of surface.

A 15,000-20,000m drill program is planned to commence in January 2022 target resource expansion.

“We are very pleased to deliver the maiden Mineral Resource at Diamba Sud at a low discovery cost of US$11 per ounce,” Chesser MD Andrew Grove said. “The shallow, high-grade nature of the mineralisation has resulted in a robust resource that we believe will continue to grow with additional drilling.”

Time for a break. Go for walk or take some tea; we’ll be back right after this with upcoming IPOs.
 

 

POTENTIAL IPOS

 

SARAMA RESOURCES (TSX.V:SWA)

Another of Grigor’s picks, Sarama is reportedly keen on returning to its bosses’ Aussie roots by listing on the ASX, though the move announced in October last year has been stalled by permitting issues.

Sarama owns the Sanutura project in southwest Burkina Faso, which between the Tankoro and Bondi deposits has a mineral resource of 2.9Moz, including 9.4Mt at 1.9g/t for 600,000oz in the indicated category and 52.7Mt at 1.4g/t for 2.3Moz inferred.

The gold explorer is led by MD Andrew Dinning, a former WMC man who was COO at Moto Gold Mines, the company which outlined the 22Moz Kibali gold mine in the DRC and flipped it to Randgold (now Barrick) and AngloGold Ashanti for US$600 million in 2009.

Its market cap is just ~C$19m on last count – too low in Grigor’s opinion.

“It is contemplating a a mineable resource in the order of 2Moz at around 2 gpt with low technical risk and high gold recoveries. The target resource across its portfolio of projects is 3-3.5Moz. All the negatives have been factored into the share price, and then some,” Grigor said.

“A market capitalisation of only $20m for 2.9 Moz is way too cheap. We expect that once the ASX listing is sorted, and there is another $5m in the kitty, the share price will rise above the long term downtrend in which it is currently imprisoned.”

 

HARANGA RESOURCES

Haranga was chasing up $6-6.5m in an IPO led by CPS Capital Group.

Not to be confused with the delisted iron ore explorer of the same name, it owns the Issia project to the south of Tietto’s Abujar project in southern Cote d’Ivoire.

Issia boasts “extensive” geochemical gold anomalies but no previous exploration drilling despite evidence of ‘artisanal mining’ from local prospectors.

Haranga wants to launch a RAB drilling program in early 2022.

It is also holds or is securing permits for gold projects in the southern part of Burkina Faso, and the Saraya uranium and lithium project over in Senegal.

 

LUKIN RESOURCES

This IPO hopeful recently opened a $7.5 million IPO through Novus Capital seeking cash to explore gold and base metals projects in Queensland and South Africa.

Its South African projects are all located in the Northern Cape Province, including the Koa project 15km south of Orion Minerals’ large Prieska VMS deposit and the 412,000t Bushy Park zinc deposit.

Lukin’s gold interests come at the Vaalkop project, which hosts the polymetallic Salt River deposit.

That contains 440,000oz of gold, 434,000t of zinc and 140,000t of copper.

At Stockhead, we tell it like it is. While Oklo Resources and Firefinch are Stockhead advertisers, they did not sponsor this article.

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Economics

Portfolio Tweaks for 2022

Are you ready for risk-off? … two trades from Eric Fry looking poised to generate strong returns … two hedge trades to balance your portfolio

In 2022,…

Are you ready for risk-off? … two trades from Eric Fry looking poised to generate strong returns … two hedge trades to balance your portfolio

In 2022, which of the following will have better returns?

Volkswagen or Tesla?

Gold or Bitcoin?

Intel or NVIDIA?

Got your picks?

Our macro specialist, Eric Fry, is going with…drumroll…Volkswagen, gold, and Intel.

A few of you might suddenly be choking on your dinner. So, let’s jump straight to Eric for more color:

I expect the “character” of the financial markets to shift noticeably from a “risk-on” bias to “risk off.”

In other words, I expect investors to behave more cautiously and timidly than they did in 2021.

Generally speaking, therefore, I’m expecting relatively cautious investments to outperform their relatively risky counterparts.

“Caution” certainly feels appropriate after the market’s selloff in recent weeks, including today’s massive turnaround that saw the Nasdaq go from 2% gains to a loss (as I write, near the end of the day).

Yesterday, the Nasdaq slipped into an official correction. Meanwhile, the S&P and Dow are down roughly 6% and 5% from recent highs.

So, what 2022 trends will present investors that wonderful combination of returns and caution?

In Eric’s latest issue of Investment Report, he detailed several. Today, let’s peek into the issue to find out what opportunities Eric sees outperforming in 2022.

***A fantastic setup in commodities

For newer Digest readers, Eric is our global macro specialist and the editor behind Investment Report. As a macro investor, he evaluates markets and asset classes from a big-picture perspective to identify attractive opportunities.

Once a macro trend is in his crosshairs, he digs down to find the right, specific investment to play the opportunity.

It’s been a powerful strategy. In his decades in the business, Eric has dug up more 1,000%+ gaining investments than anyone we know of in the newsletter industry.

Returning to cautious approaches to 2022, Eric points toward commodities.

Now, regular Digest readers are familiar with Eric’s bullishness on the copper trade. In fact, yesterday’s Digest touched on this.

We won’t rehash those details again, but here’s Eric’s quick take:

Bottom line: Robust future demand growth for copper is fairly certain, but the mining industry’s capacity to satisfy that growth is not.

That’s the sort of equation that should put upward pressure on the copper price for many years to come.

But copper isn’t the only commodity Eric likes in 2022.

The second is something our world wants to do without, but addictions are hard to break. And this one is likely to generate great returns before it kicks the bucket.

From Eric:

No matter how “doomed” crude oil may be over the long term, it could deliver some spectacular short-term gains.

The bullish backdrop for crude has become too compelling to ignore.

***In the past, Eric has highlighted the fallacy of “more electric vehicles mean oil is dead”

In short, though EVs will capture a growing share of the global auto market in coming years, the total auto market will continue to grow larger. That means the number of gas-powered automobiles on the road will continue to increase as well.

When you combine that reality with demand from other industries, the International Energy Agency (IEA) expects worldwide demand will be at least 25% higher in 2050 than it is today.

Recently, oil demand has rebounded sharply, supporting higher prices. In fact, this week, oil hit a seven-year high (in part due to an attack by Yemeni Houthi rebels on the three United Arab Emirates fuel tankers).

But investors pointing toward this seven-year-high saying that prices are peaking are missing an important part of the equation – basic supply and demand.

As to demand, this is from yesterday in The Wall Street Journal:

Global oil demand will exceed pre-pandemic levels this year thanks to growing Covid-19 immunization rates and as recent virus waves haven’t proved severe enough to warrant a return to strict lockdown measures, the International Energy Agency said Wednesday.

And for supply, here’s Eric:

Most folks assume that OPEC and others could easily ramp production to satisfy any significant surge in demand. But that assumption rests on a frail statistical foundation.

The U.S. has supplied almost all of the world’s crude production growth during the last decade, not OPEC. Pulling that rabbit out of the hat a second time will not be easy, as U.S. shale production topped out two years ago.

Eric points out that oil and gas companies have been slashing the exploration budgets for years. Global investments in oil and gas exploration and production are down by about 65% since 2014.

It’s not hard to connect the dots:

Net-net: Bountiful new supplies of crude oil seem highly unlikely.

A tightening oil market, coupled with a rising inflationary trend, provides ample reason to expect oil stocks to deliver market-beating results in 2022.

***Two “hedge” plays to balance your broader portfolio

Copper and oil are likely to bring firepower to your returns this year – think “offense.”

Let’s now look at two ways to play defense: gold and a bet against bonds.

Starting with gold, there’s no denying that this trade has been incredibly disappointing, most notably because it’s done nothing while inflation has surged.

From Eric:

As the chart below shows, the gold price trend tends to track the inflation trend… but not this time around.

Despite the skyrocketing inflation reading on the right side of the chart, the gold price has been falling!

Chart showing gold's price dropping while inflation has been surging

Even so, the yellow metal deserves the benefit of the doubt, both as an inflation hedge and as a hedge against stock market volatility… at least for now.

I still believe gold-related plays deserve a few investment dollars in a balanced portfolio.

Plus, gold might get a boost from an unexpected source…grumpy Bitcoin investors.

Through nearly all of 2021, Bitcoin acted like an inflation hedge. As yields surged, so too did Bitcoin’s price. When they fell, Bitcoin dropped.

As we noted earlier this week here in the Digest, this relationship appears to have come to a fiery crash in 2022.

What we’re seeing now is Bitcoin being treated as a risk asset. As yields surge, investors have been dumping Bitcoin.

But they’re not dumping gold.

Below, we look at gold versus Bitcoin since December 1. Bitcoin has lost 27% while gold is up 4%.

Chart showing gold's price rising while bitcoin's price has fallen sharplySource: StockCharts.com

Remember, both of these assets derive their value from one source – emotion.

If we are truly seeing a broad shift toward “risk off” sentiment, all signs point toward gold being considered a stabler storehouse of value than cryptos.

And this could attract some “me too” Bitcoin investors who have been burned and are now looking for something more solid.

(To avoid confusion, we’re bullish on Bitcoin and elite altcoins. The analysis above refers to the mindsets behind investing in the two asset classes.)

***For the second hedge play, consider a bet against bonds

Interest rates have been sliding for four decades. But Eric suggests we could finally see a reversal this year.

From his issue:

As most folks are aware, the CPI inflation rate is running red-hot at a 40-year high of 7%. That means the buyer of a 30-year Treasury bond yielding 2.0% is receiving a robust after-inflation return of minus 5% per year.

That math is not the kind that builds wealth.

Sooner or later, bond buyers might demand more than 2% interest to tie up their money for 30 years… especially because the federal deficit is still running at a $215 billion monthly clip, or $2.6 trillion per year…

Without the price-insensitive Federal Reserve sopping a big chunk of that titanic Treasury bond supply, who will? And at what price?

Someone will buy our bonds, of course. But they might demand a much higher rate of interest to do so.

Eric is quick to point out that a sustained rising rate environment is not a certainty.

In fact, just about everyone is anticipating rates will be much higher a year from today. And longtime investors will likely tell you that when everyone believes the same narrative about the market, surprises often result.

That said, higher rates are enough of a possibility for Eric to feel confident about taking on this trade as a hedge.

If you’re an Investment Report subscriber, be sure to check out your latest issue. Eric details the specific investments he’s recommending for each of these trends plus a few others. To learn more about joining Eric in Investment Reportclick here.

***Wrapping up, who knows what 2022 will bring, but it’s unlikely to offer the huge, broad returns as 2021

Is your portfolio ready for that?

If not, look at the trends we’ve touched on today. They’re likely to provide both returns and an added degree of portfolio hedging.

I’ll give Eric the final word:

Markets are forever and always cyclical. Sometimes cycles take their sweet time to shift direction, but they always do… eventually.

Once upon a time, hedging was a worthwhile activity…

That was before the Fates shifted and began smiling on unhedged strategies.

I believe the Fates may be shifting once again. We’ll see.

Have a good evening,

Jeff Remsburg

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Author: Jeff Remsburg

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A greener trend for mining

An increasing level of stakeholder pressure has pushed the mining industry to re-think its approaches to environmental, social and governance responsibilities.
Australian…

An increasing level of stakeholder pressure has pushed the mining industry to re-think its approaches to environmental, social and governance responsibilities. Australian Mining speaks with some of the companies and organisations leading the transformation. 

The mining industry is a critical component to a decarbonised world. 

For it to remain essential, companies must adhere to external pressures to cut emissions and go beyond their responsibilities as corporate citizens.

A larger supply of critical minerals for net zero technologies will be needed for electric vehicles (EV), wind farm and solar power technologies if countries are to reach their emissions reduction targets.

Commodities including copper, nickel and rare earth elements will be important to this transformation, but growing stakeholder pressure means mining companies are needing to show a stronger commitment towards environmental, social and governance (ESG) requirements to retain offtake partners and supply chain stability.

ESG standards for mining include energy efficiency, emissions reduction and water efficiency, along with improved worker safety and community relations. 

Stronger ESG standards are also making their mark on other major commodities in Australia, including iron ore and gold, two of the key resources exported from Australia. 

Ernst & Young’s (EY’s) report, Top 10 Business Risks and Opportunities for mining and metals in 2022, reveals environmental and social risks will be the most significant factor for the industry to consider over the next year. 

The report surveyed 200 global mining executives that gave their insights into the risks and opportunities for the industry in the year ahead. 

“Investor and community relations have really changed,” EY global mining and metals leader Paul Mitchell says. “If you went back in time, community relations were down the flagpole and now it’s a factor that boards and CEOs ask questions about, and the importance of that role has increased.”

While the risks are present, there is value to be had by mining companies if they appease ESG demands.

Mining companies including BHP, Fortescue Metals Group and Rio Tinto have also partnered with organisations, including the Cooperative Research Centre for Transformations in Mining Economies (CRC TiME), to drive sustainable change in the industry.

CRC TiME has more than 70 industry partners across the mining and METS (mining equipment, technology and service) sectors, regional development organisations, community and first nations groups, state and federal governments and research partners, all looking to address complex challenges across mine closure and rehabilitation, which are essential aspects to ESG.

The organisation was founded through the Australian Government’s Cooperative Research Centre program in 2020 to improve trust between mining companies, regulators and communities. 

This is being delivered through four research programs that cover regional economic development, risk evaluation and planning, operational solutions and data integration, forecasting and scale. 

CRC TiME associate professor Bryan Maybee is part of the risk, evaluation and planning program, bringing experience in minerals and energy economics from Curtin University. 

Maybee says there is a strong value incentive for mining companies to get their rehabilitation measures completed correctly. 

“Responsible closure is one of the key factors that is used to measure ESG outcomes,” he says. “Instead of looking at a five-year or a 10-year mine life, we actually have to start looking at much longer timeframes, taking into account the life after the mine and think about the future economic use for the land.” 

Without a social licence to operate, mining companies may be at risk of being unable to develop new mining operations across global jurisdictions. 

If a mining company has an effective mine closure plan, government and community groups are more likely to accept a new development.

The risk, evaluation and planning program will aim to gel operational activity with mine closure planning, which requires changes to decision making in response to uncertainty. 

This involves advanced evaluation frameworks for assets, real-time predictive models and planning tools to identify risks. 

In June, CRC TiME initiated a study in collaboration with Fortescue, the University of Western Australia and Curtin University, which focusses on increasing plant nutrients in iron ore waste at Fortescue’s Chichester Hub operation in Western Australia.

The move towards “green” iron ore, which is mined using zero emissions is also a factor that Australia’s largest miners are having to consider.

“People want to know where everything has come from, so it is important to be able to show iron ore is mined in a responsible way,” Maybee says. “Green iron ore for example is becoming an important consideration in retaining customers for your product.

“Being a good corporate citizen being responsible as far as ESG goes, we actually have the opportunity to operate more sustainably.

“An operator that closes their mine responsibly and relinquishes it will build confidence with regulators.”

According to Maybee, stronger environmental outcomes can reduce community unrest related to an operation and therefore boost employee sentiment. 

“By operating in an ESG responsible manner and embedding those factors into the way that we operate you actually can reduce risk, which means smoother, more productive and efficient operations,” Maybee says. 

EY’s top 10 risks and opportunities for 2022. Source: Ernst & Young.

 

Solving the ESG puzzle 

There are several innovative ways that mining companies can boost their ESG compliance outside of progressive mine closures. 

Advancements in Industry 4.0 technologies have delivered real-time and predictive capabilities across the entire mining operation. 

Envirosuite global head, mining and industrial, Matt Scholl says environmental solutions offer more than just compliance for mine sites.

“Any mining company that treats environmental management as a compliance issue only, will be outcompeted by the wave of progressive miners who are already using environmental intelligence to optimise their operations,” Scholl says. 

Envirosuite recognises the importance of environmental management to ESG requirements for mine sites and has developed its environmental intelligence platform, which can optimise plans for weather risks and maintain compliance while reaching specific production goals. 

Environmental intelligence uses data, artificial intelligence and other digital technologies alongside environmental and sustainability research to prevent any environmental impacts. 

For example, the threat of changing weather patterns on an open pit mine could cause an unexpected shutdown. Envirosuite’s platform allows mine sites to develop an awareness of these risks before they occur. 

“ESG performance covers a range of areas, however, a key pillar of ESG centres on environmental management,” Scholl says. 

“ESG ratings are high-level indicators of whether companies have good measures in place to manage these risks. 

“Envirosuite provides real-time and predictive capabilities to help mining companies manage environmental risks while enabling them to optimise production.”

SRK Consulting offers specialised services for the mining industry, including environment, community and mine closure services and water management.

The company was founded in 1974 and has grown to work on more than 20,000 projects worldwide.

SRK also uses data analysis to determine strategies for mining companies to comply with regulations and address environmental and social challenges for a more effective mining operation. 

According to SRK principal consultant (geochemistry) Claire Linklater, stakeholder expectations for ESG requirements are growing. 

“I think those topics are much higher on the social and political agenda and the regulators are starting to become much more informed in these areas,” Linklater says. 

“The people that are financing mining projects pay much more attention to the ESG implications of what’s going on. 

“Poor ESG management can cause mining companies reputational damage on the global stage and might actually impact finance for another project elsewhere. 

“This is especially true of companies operating across multiple jurisdictions and continents.”

SRK can assess environmental risks in the early stages of a mining development to mitigate risks of poor environmental outcomes. 

For example, identification of problematic waste rock volumes during exploration opens up the opportunity to either avoid mining those volumes, or develop waste rock dump designs to control the potential for impacts on water quality once a mine site is up and running. 

By mitigating environmental risks before they occur, mine sites can save costly retrograde solutions down the line and prevent poor ESG ratings from stakeholder groups. 

Stakeholders are painting a clear picture of where mining company ESG requirements need to be to receive support for new developments. 

Through collaboration and the adoption of innovative ESG services, the mining industry will be able to move forward to deliver positive outcomes that are well-received by these groups.  

Australian Mining.


Author: Emily Murphy

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Precious Metals

Gold Uptrend Confirmed

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary…

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary pressures and continued supply chain headwinds while worries about rate hikes leading to a cool-down in valuations in tech. However, one asset class that is holding its ground is gold (GLD), which is up 1% year-to-date, outperforming the Nasdaq by 700 basis points. This outperformance appears more than overdue, with gold typically performing its best when real rates are deep in negative territory, in line with the current backdrop. Let’s take a closer look below:

(Source: YCharts.com, Author’s Chart)

Looking at the chart above, we can see that real rates continue to trend lower and are now sitting at their lowest levels in decades, spurred by continued high single-digit inflation readings. This backdrop has typically been very favorable for gold, given that investors are not getting interest elsewhere, meaning there is no opportunity cost to holding the metal, and there is an opportunity cost to holding cash. The one impediment to gold’s performance, though, has been the fact that the major market averages have been climbing higher with a relentless bid, allowing investors to park their cash safely in the market.

Chart, line chart

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However, since the year began, this does not appear to be the case, and gold is massively outperforming the S&P-500, as well as growth and value ETFs. This has created a perfect storm for the metal, and its outperformance can be highlighted by the above chart, which shows gold recently breaking out to new multi-week highs vs. the S&P-500. A new trend upwards following a period of significant underperformance has typically led to sustained rallies in the gold price, with the most recent example being February 2020 ($1,500/oz to $2,050/oz). Hence, this is a very positive development for the gold bulls.

The key, however, is that gold’s outperformance vs. the S&P-500 is not simply due to the S&P-500 being in a bear market and gold trending lower, but just losing less ground. The good news is that this is not the case, with the monthly chart for gold showing that it is building a massive cup and handle, with much of its handle being built above its prior resistance. This is a very bullish long-term pattern, and a successful breakout above $2,000/oz would target a move to at least $2,350/oz. 

Chart

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(Source: TC2000.com)

Meanwhile, if we look at the yearly chart above, we can see an even better look at the cup and handle pattern and why the discussion that gold is dead or in a deep downtrend is simply incorrect. While one can certainly make the case that gold has gone nowhere over the past 18 months and the daily chart remains volatile, the big picture has rarely looked better in the past several decades, and zero technical damage has been done. So, for investors looking for an asset with a favorable fundamental backdrop that’s also sporting a very attractive looking long-term chart, I am hard-pressed to find anything as attractive as gold among the 150+ ETFs and assets I track. 

Chart, line chart

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(Source: TC2000.com)

So, what’s the best course of action?

One of my favored ways to play the gold sector is Agnico Eagle Mines (AEM). The reason is that it has one of the best margin profiles sector-wide; the potential to increase production by more than 30% over the next nine years, and it operates out of the most attractive jurisdictions globally. This is evidenced by the fact that AEM should be able to grow annual gold production from ~3.4 million ounces to ~4.5 million ounces between now and 2030 and has 50% margins at a $1,800/oz gold price. 

Chart

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(Source: TC2000.com)

As the chart above shows, AEM’s technical picture continues to improve, with the stock building a 10+ year cup and handle base atop its prior multi-decade breakout level. This is a very bullish pattern, and a breakout above $70.00 would target a move above $95.00 in the next two years. So, with the stock consolidating near the right side of its cup and trading at a very attractive valuation of 1.0x P/NAV, I see this as an attractive entry point. Notably, AEM also pays a ~2.7% dividend yield, double that of the S&P-500. For those preferring to invest in gold, I continue to expect a trend of higher lows, with the $1,750/oz – $1,780/oz area representing a very low-risk buy zone. 

It’s no secret that GLD has massively underperformed other ETFs over the past 18 months, and with many focused on the last shiny thing and having recency bias, it’s no surprise that gold remains out of favor. However, the best time to buy the metal is when it’s been hated and has corrected sharply from its highs, making this an attractive entry point. Given that most other ETFs could use a rest, and the fundamental backdrop remains very favorable for gold, I remain medium-term and long-term bullish, and I would not be surprised to see gold above $2,080/oz this year. 

Disclosure: I am long GLD, AEM

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

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Author: Taylor Dart

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