Barry FitzGerald: These two West African gold explorers are potential takeover targets

Maybe it’s the lockdowns, or the weather. Either way, Garimpeiro has grown a bit bored with the local gold exploration scene.

Despite the record exploration spend on finding new ounces, there has not been much in the way of exciting newsflow from the sector recently.

Stocks like De Grey (ASX:DEG) and Bellevue (ASX:BGL) keep on piling on the ounces but it’s hard to get excited when it is remembered they sport $1.5 billion and $840 million market caps respectively.

That makes it hard to move the dial, particularly with the sideways trading gold price of late.

As for the junior explorers, it could be a case of the next big gold discovery being hidden away in assay labs where delays are still an issue.

So it’s off to the wilds of West Africa for Garimpeiro in search of some excitement. The region has long been a happy hunting ground for ever intrepid Aussie explorers.

Because a multi-million ounce discovery in West Africa does not attract the premium rating it would get if it was out the back of Kalgoorlie, Aussie juniors that have notched up success there often get picked off by established producers looking for growth.

Last year alone the ASX waved goodbye to Cardinal Resources which was the subject of $530m shootout between Chinese and Russian interests over its 5 million ounce gold discovery in Ghana, while Côte d’Ivoire explorer Exore was snapped up by ASX-listed West African gold producer specialist Perseus (PRU) for $60m.

The premiums to the pre-bid price in those cases was 330% and 70% respectively.

While investing in companies for takeover bids that might never eventuate is not a smart strategy, there is no doubt takeovers bids at big premiums has become a regular feature for ASX gold explorers operating in West Africa.

Remembering that investing for takeover bids is dumb, two West African explorers/developers that have caught Garimpeiro’s eye, based on their exploration success, are Predictive Discovery and Tietto.

Predictive Discovery (ASX:PDI)

Not a new name from Garimpeiro as it was mentioned at the start of the month on the basis that chatter in Perth mining circles was that it was a “thumper.’’

Garimpeiro admitted he didn’t know what that meant but thought it best to include PDI in his mid-year portfolio review at the time anyway. PDI was 9.1c at the time and has since scooted off to 16.5c, for good reason too.

PDI has since reported “bonanza’’ gold grades over broad widths at its Bankan project in sunny Guinea.

Best results from drilling the NE Bankan prospect included 49.7m at 11.7g/t gold from 301m and 55.6m at 5.7g/t gold from 237m. The new results pointed to the presence of a high-grade zone that is open at depth.

”These new results have added a whole new dimension to the project as it now appears that the core of the deposit contains consistently higher grades in a zone which is expanding at depth,’’ the company said.

Tietto (ASX:TIE)

The Côte d’Ivoire explorer/developer was a 44c stock in January but has drifted back to 33.5c despite its Abujar project growing in size and the company’s plan for first production in the December quarter next year.

Far East Capital’s Warwick Grigor reckons the price weakness could simply be a case of “more risk preferring shareholders moving out of the stock for the usually less exciting period of financing and development of the gold mine.’’

“They need to be replaced on the share register by more patient holders who are happy to sit through the next stage of the project. Recent share price movements suggest that the share price may be turning upwards again as the downtrend has been broken,’’ Grigor said.

The Abujar resource estimate has just been upgraded to 3.4 million ounces and importantly, the higher confidence indicated figure increased by 55% to 1.85m ounces. A definitive feasibility study is due next month.