Barry FitzGerald: Time to hunt value in Australia again – here’s two ASX gold bargains
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Garimpeiro mentioned back on July 25 that he had grown a bit bored with the local gold exploration scene and that he was off to the wilds of West Africa in search of action.
Tietto has since moved to 38c ahead of going into a trading halt on Friday, while Predictive has risen to 22c. So that’s gains of 13.5% and 33% respectively.
They are more than handy gains given the gold price has fallen to six week lows, with investors giving ASX gold equities in general a lashing in response.
The lashing has been overdone and value is returning to the sector now that gold seems to be stabilising at around the $US1,750 an ounce level.
That has prompted Garimpeiro to go value hunting back in Australia. But first up, Garimpeiro will run through what has been behind the ability of Tietto and Predictive to swim against the tide.
Tietto’s trading halt was called ahead of it releasing its definitive feasibility study (DFS) into the development of its Abujar gold project in Côte d’Ivoire.
An earlier preliminary study pointed to a 3.5mtpa mining and processing operation producing 200,000oz in its first year, with an annual average of 168,000oz over the first six years of the project.
On Friday there was market talk that given the quality of recent drilling results at Abujar, it would not surprise if the DFS has upgraded the mining and processing rate to 4mtpa.
The bigger and better Abujar expected to be confirmed in the DFS will have its fans in the market. But Garimpeiro is wondering what the $1.3 billion Perseus (ASX:PRU) makes of the DFS.
Perseus has developed two gold mines in Côte d’Ivoire since 2018. Along with its mine in the neighbouring Ghana, it now has the base to become an annual producer of 500,000oz from next year.
To do that for the long-term though, Perseus needs to build its resource/reserve base. It is why it has said it will spend $150m over the next three years to “find’’ an additional 2.4 million ounces.
Garimpeiro notes that Abujar is a 3.4 million ounce resource (1.85m oz indicated) that continues to grow with further exploration, and that Tietto has a market cap of $170m and an enterprise value of $125m after accounting for its cash.
While Perseus has swung its growth plans from acquisitions to the drill bit, Tietto must surely be on the company’s radar.
The takeaway is that the Abujar DFS will be well thumbed by Perseus because sometimes it is cheaper (and quicker) to buy ounces in the ground rather than go looking for them.
Over in Guinea, Predictive has laid claim to one of the biggest gold discoveries in recent times at its Bankan gold project in the Siguiri Basin.
Bankan is what Perth mining circles earlier this year were telling Garimpeiro was a “thumper”. They were not wrong, with Predictive’s maiden resource estimate weighing in at 3.65m ounces.
The resource estimate came after only 17 months of drilling which goes to show that as much as we like to think WA is prospective for new gold discoveries, West Africa gives it a run for its money.
Now back to Australia. As mentioned earlier, value is creeping back into gold equities on the basis that the sell-off in response to the gold price fall has been overdone, for as long as the metal holds above $US1,750/oz that is.
CALIDUS (ASX:CAI): It is trading at 54.5c for a market cap of $215m. It will be Australia’s next new gold producer from its 90,000oz Warrawoona project in the Pilbara, with output growing to 130,000oz annually with the development of the Blue Spec high-grade satellite deposit.
It has held up better than most in the recent sell-off. It was 60c as recently as September.
Most often gets compared with Capricorn Metals (ASX:CMM) which owns Australia’s newest gold mine, the 110,000-125,000oz Karlawinda project, also in the Pilbara. Capricorn has a $785m market cap.
ALKANE (ASX:ALK): Trading at 87c for a market cap of $506m. It was a $1 stock four weeks ago.
It is an established NSW gold producer with a clear pathway to longer and higher production. Its market cap is justified on its gold operations and its investments in Calidus and Genesis (ASX:GMD). That means that there is nothing in the share price for the exciting Coda gold-copper porphyry prospect.
Alkane is still teasing out the upside. The company believes there is the potential for Boda to be a large tier one gold-copper project. If it is right, its $506m market cap is nothing.