LONDON, Aug. 20, 2019 /PRNewswire/ -- Peak gold may already be here, and the only companies sitting on promising new reserves are the junior miners. The big miners are scrambling for more gold, and merger mania has taken hold. Mentioned in today's commentary includes: Barrick Gold (NYSE:GOLD), Newmont Mining (NYSE:NEM), IAMGOLD (NYSE:IAG), AngloGold Ashanti (NYSE:AU), Royal Gold (NYSE:RGLD)
Large-cap miners are doing three things at record pace:
- They're merging with other major miners (think Newmont/Goldcorp and Barrick/Randgold)
- They're scooping up juniors sitting on the best patches of gold.
- They're conducting a series of micro deals to gradually insert themselves in the junior-mining patch. We know the juniors who have already been targeted for acquisition and micro deals, so we're looking for the next prospective beneficiary. And one company stands out ahead of the rest, African Gold Group (AGG; AGGFF).
Not only is AGG sitting on a potential 2.2-million-ounce mineral resource at its Kobada Gold Project in Mali's prolific gold-producing Birimian Greenstone Belt it's also just appointed a new CEO that will turn investor heads: Legendary mining financier Stan Bharti.
Bharti has been in Mali for over a decade already. He's proved he can turn a company around for a 20X profit. 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, he's hoping to do it again with African Gold Group (AGG; AGGFF). His timing is exquisite, too: Gold is experiencing the perfect setup.
Major miners are gunning for junior prospects. The world's central banks are hoarding gold at a record pace. Talk about the Gold Standard is no longer just fluff. And major world powers are making every effort to disengage from the US dollar. All of this has seen the world's most precious metal make prodigious runs to multi-year highs.
Senior Miners Scramble To Secure New Revenue Streams
Junior gold-mining ETFs are blowing things out of the water. The VanEck Vectors Junior Gold Miners ETF is up over 36% year to date.
Last year, Goldcorp Inc. Chairman Ian Tefler called peak gold, saying production had finally peaked after four decades of uninterrupted growth. Going forward, it's extended decline for the big miners. To add new gold to their portfolios, the big gold miners are entering into a phase of merger mania.
He also knows that not all junior gold stocks will come out of this a winner. He's targeting AGG for low-cost production and undervalued assets that are likely to yield higher returns.
Miners Are Looking For Low-Cost Production
The mine has consistently produced hundreds of thousands of ounces since the beginning of the 2000s and is likely to keep producing for the foreseeable future. Further exploration in the surrounding areas is already under way, and new projects are already in the development stage.
IAMGOLD and AngloGold's success is also a positive sign for African Gold Group (AGG; AGGFF), which is situated right in the middle of this resource-rich gold belt.
The brilliant part here is that the mine holds a total resource of a whopping 2.2 million ounces. Even more brilliant: The Kobada project is a huge part of this. It's 4 kilometers long and 12 kilometers wide and African Gold Group owns the entire license. From a geological perspective, AGG could end up tripling its resource here.
It's got three zones right nearby the already proven-up 2.2 million ounces in mineral resources—and it's all easy to drill because it's all right near the surface. The deepest hole AGG's had to drill so far has been only 300 meters.
A 2016 feasibility study has already demonstrated that Kobada is simple to mine on a technical level, and that's music to investor ears. This is an open pit operation with gravity separation and leach. That means it will be a low-cost, scalable, free dig.
AGG puts 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 Price Is Right
The 2016 feasibility study shows that AGG can produce 50,000 ounces of gold a year and build that to 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.
Teams That Make A Difference
The litmus test for the ideal distressed gold asset is lots of gold in the ground, plus a substandard management team. For Bharti and F&M, Kobada represented the next big turnaround.
Why?
F&M took it over and brought on a new board, including Stan Bharti as Chairman, President & CEO. Now it's time to get to that gold. Bharti's track record on turnarounds speaks for itself, but there are other AGG board members and managers to be excited about here, as well:
These aren't just board members—they're operational legacies.
AGG also has a full local management team on the site with a very connected and powerful country manager when it comes to obtaining permits. And now, AGG can boast another big name: Daniel Callow, a 12-year veteran for trading/mining giant Glencore's African copper operations, whose just been made African Gold Group's COO.
To recap:
This is potentially one of the best discount gold stories of recent times. AGG's proved up resources of 2.2 million ounces alone are worth billions in revenue at today's soaring gold prices. They're worth billions even at yesterday's prices.
And that 2.2 million ounces of mineral reserves is only what's been proved up so far. This is a 4 kilometer-long and 12-kilometer wide stretch of prime gold that could contain triple the resources.
But what makes the company potentially worth even more is the fact that the big miners are on the hunt for just this type of junior they hope can replenish their declining reserves in the only way possible.
By. Ian Jenkins
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SOURCE OilPrice.com
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