How Wall Street Buys Gold At A Discount
FN Media Group Presents Oilprice.com Market Commentary
London – November 22, 2019 – Wall Street loves nothing better than a solid discount gold story. Especially at a time when gold prices are soaring. But what they like even better is a discount gold story that’s gone beyond discovery and is now ready to start construction. Mentioned in today’s commentary includes: IAMGOLD (NYSE:IAG), Newmont Mining Corporation (NYSE:NEM), Yamana Gold (NYSE:AUY), Pan American Silver (NASDAQ:PAAS), Kinross Gold Corporation (NYSE:KGC).
That’s where things get significantly more interesting, and where the discount on gold is still the same as it was in the discovery phase: HUGE. The only thing that moves the market on the gold-mining scene these days is fast-paced development. The discovery phase is too risky. By the production phase, the leverage has dwindled, because a junior at this phase has likely already been acquired by a bigger player. The discount goes with it.
In between is the development phase. And when it’s as fast-paced as this massive gold project Wall Street’s about to latch onto in Mali, then the needle can move—fast.
African Gold Group (AGG.V; AGGFF) is sitting on a potential 2.2-million-ounce resource at its Kobada Gold Project in Mali’s prolific gold-producing Birimian Greenstone Belt. Better still, it’s low-cost, near-surface and easy-to-process gold. And better still yet: It’s evaluating the potential for an increase in estimated annual production to 100,000 ounces per year.
AGG is in the middle of a drilling frenzy, and construction could start in just six months.
Junior gold stocks have a reputation for hundredfold stock gains—but while this needle will sometimes be moved on dramatic discoveries, it moves most in the fast-paced news of the development phase, when the potential for production looks like a sure thing. Then, it can move dramatically again on news of a big acquisition.
In the case of AGG’s Kobada Project, what may ping Wall Street’s radar loudest is who’s behind it: This is another project of legendary Canadian mining financier Stan Bharti, who is also AGG’s new CEO, supported by heavy hitter Danny Callow, the No. 2 mining head for giant Glencore’s Africa division.
Everything Bharti touches turns—in many cases literally—into gold, and when you’re playing on the junior field, half of the de-risk depends on who’s running the show. He’s already done it once in this same venue. In 2008, Bharti’s Forbes & Manhattan acquired Avion in Mali for $20 million, turned it around and sold it to Endeavour for $500 million in 2012. Now that Mali mine is Endeavour’s main asset.
He’s hoping to do it again with African Gold Group.
#1 For the Biggest Discounts, Go To Africa
The big miners aren’t done exploring. They’re waiting for the juniors to do all the heavy lifting so they can scoop them up and start producing. From the major miner perspective, we’ve already hit peak gold.
Goldcorp Inc. Chairman Ian Tefler called peak gold already last year, saying production had finally peaked after four decades of uninterrupted growth. Going forward, it’s an extended decline for the big miners.
And African Gold Group (AGG.V; AGGFF) Mali project offers one of the biggest discounts around.
Mali is the third-largest producer of gold in all of Africa, and the Birimian Greenstone Belt—the home of Africa Gold Group’s Kobada Project—is the motherlode of African gold with a long history of mining that dates back to the 19th Century.
The brilliant part here is that the mine holds an estimated total resource already of a whopping 2.2 million ounces and they haven’t even scratched the surface.
#2 The Drilling Frenzy
African Gold Group (AGG.V; AGGFF) is already on hole No. 10, and it’s got 3 drills turning and another just arrived on the scene this week. The real kicker: They’re actually ahead of schedule, which is largely unheard of for a junior. They were supposed to complete drilling in January, and have now moved it up a month.
Right now, they’re drilling 1 hole every three days, at about $70,000 per hole. It’s so fast that it’ll wrap up a month early, on December 12th. But between now and April 2020, there will be much more than drilling completion pushing this fast and furious news flow. In a week, AGG expects to have new geoinformation coming out.
Then, by Thanksgiving, they expect to have results from key metallurgical tests worked out, crucial for developing the optimized process plant methodology. By the end of December, they should have detailed information about operating costs, and be defining the process and getting CAPEX numbers together to a high level of accuracy.
#3 Low-Cost Production, World-Class Venue
A 2016 feasibility study demonstrated that Kobada is simple to mine on a technical level, and that’s music to investor’s ears.
This is an open pit operation with gravity separation and leach. That means it will be a low-cost, scalable, free dig. These aren’t challenging processing operations, so there’s very little sustaining cost to keep it running.
The AGG (AGG; AGGFF) 2016 feasibility study put average LOM cash operating costs at $557/Oz Au, exclusive of royalties, and all-in LOM sustaining cash operating costs at $788/Oz Au. The economics are just what large-cap miners, and investors, are looking for: high early cash flows from starter pits and a post-tax IRR of 43%, based on $1200 gold, or 55% based on $1400 gold. But we’ve already got $1,500 gold—and it’s still climbing.
With the 2016 study showing a $45.4-million pre-production capital cost, African Gold Group is targeting a 1.5-year payback from the start of commercial production, and full payback in only 2.5 years.
The 2016 feasibility study showed that AGG can produce 50,000 ounces of gold a year and could potentially build that to as much as 100,000 ounces a year. All for under $50 million.
There are a lot of great projects out there, but many of them don’t see the light of day because they need billions in funding to get them off the ground. That’s not the case with Kobada.
#4 The Key to This Junior Stock Spike: ‘The Bharti Premium’—Again
The team at African Gold Group (AGG.V; AGGFF) is an all-star group of mining industry professionals and financial whizzes who have spun iron ore into gold for decades…and are ready to do it again at Kobada.
Working the heavy machinery is miner engineer Danny Callow, the former mining head for giant Glencore’s Copper Africa division, where he built and operated huge copper / cobalt operations in Africa including one green fields to a 210,000 ton copper producer and the largest cobalt mine in the world. But the real shocker here is Stan Bharti, the company’s new CEO. With thirty years of experience and a jaw-dropping resume, Bharti could lead AGG into a golden age.
Companies under Stan’s leadership have uncovered 20 million ounces of gold, more than 3 billion ounces of iron ore and 1.5 billion ounces of potash. He’s amassed more than $3 billion in investment capital for his companies and released countless billions to his shareholders.
“It feels like we are in 2003 again,” Bharti said, “at the cusp of a great run in gold and gold stocks.”
“I have always bought or acquired undervalued assets in emerging markets. This gives our shareholders the best potential for HUGE returns. African Gold Group (AGG.V; AGGFF) fits in that category very well.”
#5 A New Gold Rush
Because the economy seems to be teetering on the edge, Wall Street is keeping a close eye on gold, and by extension, gold miners.
IAMGOLD (NYSE:IAG) is a prime example. It is a fast-growing mid-tier gold miner on the fast track to become a major player in the gold mining industry. Many traders are bullish on IAMGOLD, expecting continued appreciation as well as steady growth from the ambitious company.
But major miners are favored among Wall Street, as well. Newmont Mining Corporation (NYSE:NEM) is one of the leading mining companies in the world. Newmont has steadily carved out a name for itself among those in the industry. While the company’s stock took a dip in the middle of the year, after closing a deal to acquire Goldcorp, it has seen nothing but positive news since.
Yamana Gold (NYSE:AUY) is another favorite. It recently signed an agreement with Glencore and Goldcorp to develop and operate another Argentinian project, the Agua Rica. Initial analysis suggests the potential for a mine life in excess of 25 years at average annual production of approximately 236,000 tonnes (520 million pounds) of copper-equivalent metal, including the contributions of gold, molybdenum, and silver, for the first 10 years of operation.
Wall Street is also watching out for other, more diversified miners. Pan American Silver (NASDAQ:PAAS). Though silver has seen better days, it is still a favorite among investors stocking up on safe haven assets. Recently, Pan American made a major acquisition of Tahoe Resources, absorbing the company’s issued and outstanding shares.
Kinross Gold Corporation (NYSE:KGC)is relatively new on the scene, founded in the early 90s, but it certainly isn’t lacking drive or experience. In 2015, the company received the highest ranking for of any Canadian miner in Maclean’s magazine’s annual assessment of socially responsible companies.
While Kinross posted a significant loss in the fourth quarter of 2018, the company has turned itself around this year, posting significant year-to-date growth in its share price.
The real story, however, is in small-caps like African Gold Group (AGG; AGGFF). It is sitting on 2.2 million ounces of mineral resources in Mali. That means that a small-cap company with a market cap of only $30 million is sitting on gold reserves potentially worth billions. Shares are under 30 cents right now, while gold prices are at $1500. That is the cheapest way to get in on 2 million ounces of gold—ever.
But what’s discount gold today, won’t be discount gold tomorrow. And what’s an advanced development gold project today, could potentially be an acquisition target tomorrow
By. Meredith Taylor
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