Where To Look As Peak Gold Approaches
FN Media Group Presents Oilprice.com Market Commentary
London – November 25, 2019 – It’s finally happening: peak gold. The big gold companies can’t grow any bigger, and the biggest ones are losing steam. Today, the real golden opportunities are in the small miners. And there’s one little company in West Africa that appears ready to break out. Mentioned in today’s commentary includes: Eldorado Gold Corp. (NYSE:EGO), Yamana Gold (NYSE:AUY), Agnico Eagle Mines (NYSE:AEM), Kinross Gold Corporation (NYSE:KGC), Wheaton Precious Metals (NYSE:WPM).
With a new CEO and a near-term target of 50,000 ounces of gold per year, African Gold Group (AGG; AGGFF) should be popping up on your radar. And it’s just getting started: the company is shooting for 100,000 ounces per year, from a mine that already has an estimated 2.2 million ounces of gold in the ground. AGG has locked in the Kobada Mine, astride Mail’s prolific Birmian Greenstone belt and industry titan Stan Bharti has just joined as CEO.
The timing couldn’t be better: Gold is building. Major miners are looking for fresh acquisitions. Banks are hoarding gold and talk of the gold standard has spiked. All of this means the world’s most precious metal is set for a major rebound.
#1 From Big to Small
Major gold miners can’t hack it right now. Bloated from over-investment in declining assets, even high gold prices can’t save the big firms from losing value.
In fact, Goldcorp Inc. Chairman Ian Tefler has said we’ve reached “peak gold,” with years of growth finally stalling for the big miners. So to balance out, they’re looking to snap up smaller firms. This means there could be big gains coming from little firms like AGG (AGG; AGGFF) with fresh assets just waiting for new capital. So it’s the start of a new round of mergers for the big companies, as they snap up whatever assets they can find.
Barrick Gold took over Randgold in 2018 for $18.3 billion. Newmont Mining took on Goldcorp, just after Tefler’s “peak gold” comments, laying down $10 billion.
President Trump is talking openly about returning the US to the gold standard: a fantastical idea, to be sure, but one that is sure to boost gold prices in the near term. Attaching the US dollar to gold would require massive gold purchases by the US Treasury—another factor leading to higher prices.
Gold assets are being snapped up in equity markets around the world in preparation for a possible economic downturn in 2020. If you’re worried, buy gold—that’s been the mantra for decades. And no one knows this better than AGG CEO Stan Bharti, whose been immersed in gold throughout his career. He’s identified AGG as the newest low-priced gold asset. And there are few compelling reasons why.
#2 Location, Location, Location
AGG (AGG; AGGFF) is sitting on a literal gold mine: the Kobada mine, lying on top of Mali’s prolific Birmian Greenstone Belt. It’s a colossal formation running across 350,000 sq. km of first-class gold deposits in Burkina Faso, Ghana, Guinea, Mali, Niger, Senegal, and Côte d’Ivoire.
The Kobada Mine sits in the middle of this formation, with a total estimated resource already of more than 2.2 million ounces.
The property is 25 km long and 15 km wide covering an area of more than 200 square kilometres, with AGG owning the whole license. It’s already proven the 2.2-million-ounce haul, with the bulk near the surface—the deepest AGG has dug thus far is 300 meters.
A 2016 feasibility study supported Kobada’s worth. It’s an open-pit operation, using gravity separators and leach, a low-cost operation in an area with a high proven return rate. AGG estimates average LOM at $557/Oz Au, exclusive of royalties, with LOM sustaining cash operating costs of $788/Oz Au. That’s against a current price of $1500/Oz. The company’s on a fast track, working through the rainy season, with a new hole drilled every 3 days.
#3 By the Numbers
The 2016 feasibility numbers at Kobada are exactly what investors should be looking for: flows from starter pits and a post-tax IRR of 43%, based on $1200 gold, or 55% based on $1400 gold…with an even higher figure on $1500 gold. The AGG feasibility study highlighted a $45.4 million pre-production capital cost, and it is currently spending about $180k per week on drilling, at $70k per hole.
African Gold Group (AGG; AGGFF) is targeting a 1.5-year payback from the start of commercial production, and full payback in only 2.5 years: modest, attainable goals that it should reach no problem, considering the high potential of the Kobada mine.
The 2016 feasibility study shows that AGG can produce 50,000 ounces of gold a year with the potential to build that to 100,000 ounces a year. All for a steal, at only $50 million.
There are a lot of good gold projects out there, but few see the light of day. That’s not the case with Kobada. The mine is on track for a new feasibility study in April. Extensive exploration and metallurgical tests have proven the mine’s potential. And that’s thanks to AGG’s secret weapon.
#4 The Gold Standard of Leadership
There’s a new man at the helm of AGG: legendary gold exec Stan Bharti. He took over AGG on August 7, when he was appointed chairman of the board, President and CEO. An engineer, international financier, seasoned entrepreneur who brought in $3 billion in investment for past companies, Bharti’s got a long history with Mali, the site of the Kobada mine.
His firm Forbes & Manhattan, based in Toronto, is a leading firm specialized in distressed assets. For gold, that means a good management team with lots of gold in the ground and a need for lots of capital.
Kobada represents the newest opportunity, for a few reasons:
- A solid feasibility study with a resource of 2 million ounces close to the surface.
- A good location in a prolific African gold belt.
- Old management that just wasn’t cutting it.
F&M took it over and brought on a new board, including Stan Bharti as Chairman, President & CEO. With new management in position, it’s time to get to the gold. Bharti’s track record on turnarounds is self-evident, but there are other AGG board members and managers to take note of:
Sir Sam Jonah is the former CEO of Anglo Gold Ashanti, one of the two major gold companies operating in Africa in the 1990s, and one of the most highly respected African gold veterans around.
There’s also Bruce Humphrey, former COO of giant Goldcorp, the 2nd-largest gold company in the world. John Begeman, the CEO of Avion—the Mali-based gold company that he and Bharti grew from $20 million to $500 million. And now, AGG can boast another big name: Daniel Callow, a 12-year veteran for trading/mining giant Glencore’s African copper operations, the new AGG COO.
#5 The Next Gold Rush Is About To Begin
While junior miners have the most exciting upside potential, investors would be smart to keep an eye on some of the industry’s growing stars. Eldorado Gold Corp. (NYSE:EGO) is a fine example.
Eldorado has already produced 276,376 ounces of gold in the first three quarters of this year, and after the company confirmed its hefty end-of-year projections, it serves to reason that the company will be mining even more gold in the last final stretch of the year. Year-to-date, Eldorado has seen an impressive 133% surge in its share price, and it’s not likely to slow down now.
Yamana Gold (NYSE:AUY), much like Eldorado, is currently hard at work to ramp up its own gold production. Zacks Investment Research has called Yamana “a great momentum stock,” saying that all the numbers for the company are right, promising long-term growth. While Yamana’s growth hasn’t been quite as impressive as Eldorado’s, it has still seen a healthy 34 percent rise in its share price since the beginning of the year.
Yamana also signed a deal with Glencore and Goldcorp to initiate a brand-new project, also in Argentina. Yamana is also a 50 percent owner of Canada’s largest gold mine, the Canadian Malartic. And who owns the other half of the largest gold mine in Canada? That would be another Canadian gold producer, Agnico Eagle Mines (NYSE:AEM).
Agnico is the fourth largest gold mining stock on major U.S. exchanges according to the Motley Fool. Like its peers, it has also posted brag-worthy returns this year, seeing its share price grow by an impressive 45 percent.
Agnico Eagle has a lot going for it. As the Motley Fool writes, “much of Agnico Eagle’s popularity among investors comes from its near-term potential for rising production.”
Additionally, Agnico Eagle shareholders have benefited from one of the longest streaks of dividend payouts in the industry. Not only has Agnico Eagle managed to pay out a dividend for a whopping 36 years, their CEO Sean Boyd has long said it is a company priority to increase the payout.
Like Agnico Eagle Mines, Kinross Gold Corporation (NYSE:KGC) has also secured a position in the Motley Fool’s list of the 10 biggest gold mining stocks on major U.S. exchanges, coming in at lucky number seven. Kinross has a much more global view than many of its compatriot companies.
Though Kinross has only posted a 28 percent gain on the year, it is a safe bet for investors, with its established position in the industry and impressive portfolio.
For people looking for something a bit different, Wheaton Precious Metals (NYSE:WPM) offers a unique take on the mining market. Massive and well-established, Wheaton has a hand in operations around the globe and a secure position as one of the largest ‘streaming’ companies on the planet.
Wheaton has earned an impressive 33 percent gain in its stock price this year thanks to the renewed interest in gold and its strategic positioning in the market.
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.
By. Joao Piexe
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