Barry FitzGerald: Investors pivot back to West African gold; these are the small caps to watch
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West African gold is back on the radar for ASX investors, with the region’s past experience in dealing with infectious diseases like Ebola part of the consideration.
The health protocols and supply chain arrangements now being adopted at mines elsewhere in the world in response to COVID-19 have been a fact of life for West African mine operators and explorers for decades.
The region covers 16 countries but when it comes to gold, the countries that matter are those with the same sort of greenstone rock belts mined in Western Australia — Ghana, Mali, Guinea, Ivory Coast, Burkina Faso, Senegal, Mauritania and Niger.
Past experience in dealing with the A-Z of infectious diseases means that the exploration and production operations of ASX companies active in West Africa have by and large, shifted seamlessly in to operating in a COVID-19 world.
Having said that, the return of ASX investor interest in the West African scene has had more to do with the surge in the US gold price, recent exploration and development successes by ASX companies, and some takeover action surrounding them.
Gold’s flirtation with $US1700 ($2672) an ounce reflects investor demand for the metal’s safe haven properties at a time when COVID-19 has knocked global economic activity for six, forcing governments to respond with a tsunami of monetary and fiscal responses.
The strong gold price means investors are tuned in again to the leveraged discovery potential of West Africa’s lightly explored rocks — with modern exploration techniques that is — for ASX explorers turned off by the crowded Australian space.
Predictive Discovery (ASX:PDI) is the latest to have benefited. Its market cap went from next to nothing to $42m last week on the strength of impressive broad, and high-grade, hits at is Kaninko project in Guinea.
What was a 0.6c stock closed on Friday at 5.9c, making it a good old-fashioned 10-bagger.
In its most recent update, West African Resources said mining and gold production were unaffected by COVID-19 issues, noting as it did that key site management includes people that worked through the Ebola crisis in Guinea in 2014-2016.
It was the discovery of high-grade shoots that made Sanbrado something special, and now that first production is underway, its share price has risen by 28 per cent to 54c in the last month, taking its market cap to $470m.
If the mine was in WA, West African Resources’ market cap would likely be a multiple of where it is now, making it a perennial favourite in gossip around likely takeover candidates.
Talking about M & A, Cardinal Resources’ (ASX:CDV) 5.1-million-ounce gold reserve at its Namdini project in Ghana was always going to attract potential predators while it was in the financing stage.
Russia’s Nordgold pounced during last month’s share market rout to announce an indicative and conditional bid of 45.77c a share, the same price it paid to South Africa’s Gold Fields to establish a 19.9 per cent Cardinal shareholding.
Cardinal has let Nordgold into the data room but there is no guarantee that a bid will follow. That is reflected in Cardinal’s share price languishing at 37.5c for a market cap of $188m. Having said that, if Namdini was in WA, Cardinal would also be trading at a multiple of its current market cap.
On the whole, ASX players in West Africa are an active bunch. Apart from the trio mentioned above, Garimpeiro is keeping an eye on Tietto Minerals (ASX:TIE, trading at 25c), Oklo (ASX:OKU, 30.5c), and Golden Rim Resources (GMR, 0.6c).
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