Barry FitzGerald: West Africa has created ASX gold legends. Can big name backers make this the next one?

“Garimpeiro” columnist Barry FitzGerald has covered the resources industry for 35 years. Now he’s sharing the benefits of his experience with Stockhead readers.

Despite the bad press that West Africa gets on the sovereign risk side of things there is no doubting that its gold riches have been a major source of value creation on the ASX over the years.

Companies that made their way over there as junior explorers and hit the jackpot include Perseus Mining (ASX:PRU) and West African Resources (ASX:WAF). It has taken time, but success came for them alright.

Perseus raised $4.6 million in an IPO in 2004 and has gone on to be one of the most successful ASX gold stocks with a market cap $4.6 billion. The same goes for WAF which raised $6.5m in an IPO in 2010 and is now a $2.6bn company.

In recent decades, there have also been a host of West African-focussed ASX explorers that have made good discoveries and enjoyed a serious market re-rating, only to be gobbled up by a predator in merger and acquisition activity.

The high level of M & A in the West African gold producers, developers and explorers reflects a couple of things.

It reflects West Africa’s stand-out prospectivity for big and low-cost gold discoveries, and the “discount” foreign investors apply to companies operating in the region because of perceived and actual sovereign risk concerns.

The discount applied by investors provides corporates prepared to deal with the region’s sovereign risks with a “cheap” buy compared to what they could do in their home markets of Australia and North America.

So while West Africa has been a hotbed of military coups since the 1950s when the great march away from the colonial past got started, it has also been a hotbed of corporate activity. And it continues in a record gold price environment.

Catching the eye

All of that is scene setting for Garimpeiro’s interest today in African Gold (ASX:A1G), a West African gold-focussed explorer that the Evan Cranston-Tolga Kumova pairing brought to market in a $4.5 million IPO in February 2019.

The intervening period has been a tough one for explorers of any description, let alone those focussed on West Africa trying to do a Perseus or WAF. It has meant that a capital starved A1G has not been able to hit its exploration projects with the drill bit as hard as it would have liked.

Having said that, A1G has enjoyed success at its Didievi project in Cote d’Ivoire where it has worked up an (inferred) resource of 4.93Mt grading a very handy 2.9g/t gold for 450,000oz contained.

It is the start of a likely multi-million ounce story unfolding at Didievi and A1G’s other regional prospects but for a lack of capital, up until now at any rate.

A1G has just struck a strategic partnership with Canada’s Montage Gold (TSXV:MAU) – a $C1.15 billion developer of a 300,000oz a year mine in Cote d’Ivoire – that solves its exploration funding problem.

Under the deal Montage will emerge with a 19.9% stake in A1G and will become the operator at Didievi, leveraging off its existing in-country operational base and expertise. The overall aim is to confirm Didievi’s multi-million ounce potential, pronto.

Montage gets its 19.9% A1G stake via a share swap, under which it get the shares in return for it issuing A1G 2.02m of Montage shares worth $A6.46 million (up 9% since the deal was announced because Montage’s share price has risen sharply with gold’s record breaking run).

A1G gets to fund exploration by having Montage organise the sale of the shares as required. It is a neat solution to the funding issue and also heralds A1G’s entry into a powerful grouping that has decided West Africa is the place to be for gold.

The grouping consists of Montage and Montage’s key shareholders, Canada’s Lundin group and China’s Zijin, 19.7% and 9.8% Montage shareholders respectively.

Something to think about

Lundin and Zijin have already been causing a stir in West African mining circles. The pair recently took up a 10% interest in ASX-listed Predictive Discovery (ASX:PDI), the owner of the 5.4Moz Bankan gold project in Guinea.

That has caused some indigestion at Perseus as it assembled a 19.9% stake (now diluted to 17.9%) in Predictive last year as a likely precursor to an eventual takeover bid.

The arrival of the Lundin/Zijin/Montage grouping at A1G gives Perseus boss Jeff Quartermaine something else to think about as Perseus has two big mines/treatment plants in Cote d’Ivoire, one of which (Yaoure) is within easy trucking distance of Didievi should it become a high-grade producer.

The same could be said for Canada’s $C1.66 billion Allied Gold (TSX:AAUC) which has two mines and hungry treatment plants in Cote d’Ivoire, also within a 60km radius of A1G’s Didievi project.

At the completion of its deal with Montage and a concurrent placement to Montage insiders, A1G will have a market cap of about $50 million on its expanded capital base and at its mid-week share price of 10c.

The hope will be that A1G’s deal leads to a re-rating like that awarded to Canadian-listed Guinea gold explorer Sanu Gold (CSE:SANU) after striking a similar deal with Montage recently. Its shares have quadrupled.

The views, information, or opinions expressed in this article are solely those of the columnist and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.