Barry FitzGerald writes his legendary Garimpeiro resources column weekly for Stockhead

ASX-listed West African gold developers have no problem notching up multi-million ounce gold discoveries.

But that does not mean they capture market valuations to match.

That is because sovereign risk concerns make it hard to attract the premium rating similar sized deposits in the Western Australian outback would command. It also makes it that much harder to fund developments.

Still, there is an argument to be made that a value opportunity has emerged in the West African developers compared with their Australian focused peers.

Apart from anything else, their lowly market valuations make them take-over prey for the mainly Canadian and South African miners that operate some of the world’s biggest gold mines in West Africa.

That comes as growth through merger and acquisitions is back on the agenda as investors seek companies with a clear pathway to free cashflow growth in a sub $US1,200 oz gold environment.

Then there is the simple fact that multi-million ounce gold deposits are increasingly difficult to find in long preferred locations like Australia and North America.

West Africa on the other hand pumps them out on a regular basis.

Like their ASX-listed peers with gold development projects in Australia, the share prices of the ASX-listed West African contingent have been smashed in recent months in response to the retreat in gold prices to below $US1,200 an oz.

As Warren Buffett might suggest, there is good news in that because the gold ounce-rich West African explorers are cheaper than they were — much cheaper.

On that basis, Garimpeiro today identifies three West African gold stocks where the combination of multi-million ounce projects, the rise of merger and acquisition activity, and the new value position created by the broad sell-off in gold equities, has got the pundits wondering if they are about to enjoy their time in the sun.

West African Resources Limited (ASX:WAF)

As mentioned earlier, raising finance for projects in West Africa has long been a challenge.

It is hurdle that West African Resources looks to have cleared with this week’s news that it had received 14 (non-binding) offers ranging from $US160m to $US215m from international resource financiers for the $US185m development of its 90% owned Sanbrado project in Burkina Faso.

The preferred financier or syndicate will be appointed to arrange and underwrite debt project finance facilities before the end of December quarter.

West African Resources shares over the past year (ASX:WAF)
West African Resources shares over the past year (ASX:WAF)

The keen interest from financiers (WAF had cash of $42m at the end of the June quarter) does not come as a surprise given the robust project figures contained in the recently released updated feasibility study for Sanbrado.

It pointed to an initial 11-year mine life based on a probable reserve of 1.6 million ounces (20.4Mt at 2.4g/t gold).

Average annual production over the first 5 years of mine life was estimated at 211,000 ozs with all-in sustaining costs of $US551 an oz – low enough to make most Australian mines look positively high cost in comparison.

It is why no less than six brokers following the stock have buy recommendations with price targets ranging from 55c to 80c a share. Funny thing is, WAF closed yesterday at 29c a share.

Cardinal Resources (ASX:CDV)

Cardinal impressed on Tuesday with the release of a preliminary feasibility study in to the development of its Namdini project in Ghana.

The centrepiece was the maiden probable ore reserve estimate of 4.76m oz. It is of a scale that leaves most Australian gold deposits in the shade.

It now gets moved in to the definitive study phase, due for completion in the third quarter of next year.

Construction costs for a 9.5mtpa mining and processing operation that could get going in 2021 was trimmed to $US414m. Average annual production of 361,000 ozs at an AISC of $US599 an oz would be of interest to the big existing producers in West Africa.

Cardinal Resources shares over the past year (ASX:CDV)
Cardinal Resources shares over the past year (ASX:CDV)

On that note, it is worth noting that South Africa’s Gold Fields is an 11% shareholder.

Hartleys has a 95c price target on the stock. That compares with yesterday’s closing price of 47c. The broker noted that Cardinal is trading at an enterprise value to reserve oz metric of $A36 an oz.

“The current median for ASX-listed gold producers is $A360 an oz, highlighting strong potential for a re-rating if and when production can be achieved,’’ Hartleys said.

Golden Rim (ASX:GMR)

Hartleys has also turned its attention to Golden Rim which has a relatively high-grade 1m oz resource under its belt at its Kouri project in Burkina Faso.

As noted by Hartleys, Golden Rim is a “rare example of a $6.8m company (enterprise value) with 1m ozs in resource”.

Hartleys has a 4.1c, 12-month price target on the stock. That compares to its last sale price of 2.1c.

Golden Rim Resources shares over the past year (ASX:GMR)
Golden Rim Resources shares over the past year (ASX:GMR)

The challenge for Golden Rim is to build the case for a stand-alone development at the remote location by doubling the resource base.

Hartleys for one reckons that it is doable.