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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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The Discount Gold Story Wall Street Will Fall in Love With

Gold

Wall Street loves nothing better than a solid discount gold story… 

Especially at a time when gold prices are soaring.

But what they like even better is a discount gold story that’s gone beyond discovery and is now ready to start construction.

That’s where things get significantly more interesting, and where the discount on gold is still the same as it was in the discovery phase: HUGE.

The only thing that moves the market on the gold-mining scene these days is fast-paced development.

The discovery phase is too risky. By the production phase, the leverage has dwindled, because a junior at this phase has likely already been acquired by a bigger player. The discount goes with it.

In between is the development phase. And when it’s as fast-paced as this massive gold project Wall Street’s about to latch onto in Mali, then the needle can move—fast. 

African Gold Group (TSX.V: AGG; OTC:AGGFF) is sitting on a potential 2.2-million-ounce resource at its Kobada Gold Project in Mali’s prolific gold-producing Birimian Greenstone Belt. Better still, it’s low-cost, near-surface and easy-to-process gold. 

And better still yet: It’s evaluating the potential for an increase in estimated annual production to 100,000 ounces per year.

AGG is in the middle of a drilling frenzy, and construction could start in just six months.

Junior gold stocks have a reputation for hundredfold stock gains—but while this needle will sometimes be moved on dramatic discoveries, it moves most in the fast-paced news of the development phase, when the potential for production looks like a sure thing.

Then, it can move dramatically again on news of a big acquisition.

In the case of AGG’s Kobada Project, what may ping Wall Street’s radar loudest is who’s behind it: This is another project of legendary Canadian mining financier Stan Bharti, who is also AGG’s new CEO, supported by heavy hitter Danny Callow, the No. 2 mining head for giant Glencore’s Africa division.

Everything Bharti touches turns—in many cases literally—into gold, and when you’re playing on the junior field, half of the de-risk depends on who’s running the show.

In this case, it’s a legendary mining expert who has discovered 20 million ounces of gold for his companies, brought more than $3 billion in investment capital to them and unleashed billions to shareholders.

Bharti has been in Mali for over a decade already. He’s proved he can turn a company around for a 20X profit.

He’s already done it once in this same venue. In 2008, Bharti’s Forbes & Manhattan acquired Avion in Mali for $20 million, turned it around and sold it to Endeavour for $500 million in 2012.

Now that Mali mine is Endeavour’s main asset.

He’s hoping to do it again with African Gold Group.

Here are 5 reasons to keep a close eye on African Gold Group (TSX.V: AGG; OTC:AGGFF) over the coming weeks:

#1 For the Biggest Discounts, Go To Africa

The big miners aren’t done exploring. They’re waiting for the juniors to do all the heavy lifting so they can scoop them up and start producing. From the major miner perspective, we’ve already hit peak gold.

Goldcorp Inc. Chairman Ian Tefler called peak gold already last year, saying production had finally peaked after four decades of uninterrupted growth. Going forward, it’s an extended decline for the big miners. And there’s no such thing as “fracking” for gold. There's practically zero prospect of any unconventional methods or technologies to boost our gold reserves becoming economically viable in our lifetimes.

Instead, the big gold miners are entering into a phase of merger mania: First, with Barrick Gold’s $18.3-billion acquisition of Randgold last year, and then, with Newmont Mining’s $10-billion acquisition of Goldcorp. 

Africa is the only place that peak gold doesn’t seem to apply—yet.  

Africa is also where you can find the biggest discounts on gold.

And AGG’s (TSX.V: AGG; OTC:AGGFF)  Mali project offers one of the biggest discounts around.

Mali is the third-largest producer of gold in all of Africa, and the Birimian Greenstone Belt—the home of Africa Gold Group’s Kobada Project—is the motherlode of African gold with a long history of mining that dates back to the 19th Century. 

It’s a massive belt that spans 350,000 square kilometers of world-class gold deposits stretching across Burkina Faso, Ghana, Guinea, Mali, Niger, Senegal and Côte d’Ivoire.

African Gold Group’s Kobada Project is right in the middle of this belt:

The brilliant part here is that the mine holds an estimated total resource already of a whopping 2.2 million ounces and they haven’t even scratched the surface.

Even more brilliant: The current Kobada project feasibility covers a small part of  a much bigger permitted gold license area. It’s 4 kilometers of a  12 kilometers long highly prospective mineralized zone, with more than 30km of similar shear zones identified on the property that haven’t even been drilled yet,  and African Gold Group owns the entire license.

From a geological perspective, that could potentially enable AGG to triple its resources here.

It’s got three zones right nearby the already proven-up 2.2 million ounces in mineral resources—and it’s all easy to drill because it’s all right near the surface.

The deepest hole AGG’s had to drill so far has been only 300 meters.

#2 The Drilling Frenzy 

AGG (TSX.V: AGG; OTC:AGGFF) is already on hole No. 10, and it’s got 3 drills turning and another just arrived on the scene this week. The real kicker: They’re actually ahead of schedule, which is largely unheard of for a junior. They were supposed to complete drilling in January, and have now moved it up a month.

That means December 12th is drill completion.

Drilling has been extremely ambitious. AGG has even mobilized drilling in the middle of Mali’s rainy season, which involved getting the military to help them get their rigs across the Niger river. No one else is braving the rainy season—only AGG, and only at Kobada.

Right now, they’re drilling 1 hole every three days, at about $70,000 per hole. It’s so fast that it’ll wrap up a month early, on December 12th.

But between now and April 2020, there will be much more than drilling completion pushing this fast and furious news flow.

In a week, AGG expects to have new geoinformation coming out.

Then, by Thanksgiving, they expect to have results from key metallurgical tests worked out, crucial for developing the optimized process plant methodology.

By the end of December, they should have detailed information about operating costs, and be defining the process and getting CAPEX numbers together to a high level of accuracy.

The final feasibility study is scheduled for April, but by that time, it may well be a mere formality, because the investment decision is likely to have been made already by January-February.

By April, it might be a done deal for anyone looking to get in on Africa’s best discount gold story.

#3 Low-Cost Production, World-Class Venue 

A 2016 feasibility study demonstrated that Kobada is simple to mine on a technical level, and that’s music to investor’s ears.

This is an open pit operation with gravity separation and leach. That means it will be a low-cost, scalable, free dig. These aren’t challenging processing operations, so there’s very little sustaining cost to keep it running.

The AGG (TSX.V: AGG; OTC:AGGFF) 2016 feasibility study put average LOM cash operating costs at $557/Oz Au, exclusive of royalties, and all-in LOM sustaining cash operating costs at $788/Oz Au.

The economics are just what large-cap miners, and investors, are looking for: high early cash flows from starter pits and a post-tax IRR of 43%, based on $1200 gold, or 55% based on $1400 gold. But we’ve already got $1,500 gold—and it’s still climbing.

With the 2016 study showing a $45.4-million pre-production capital cost, African Gold Group is targeting a 1.5-year payback from the start of commercial production, and full payback in only 2.5 years.

The 2016 feasibility study showed that AGG can produce 50,000 ounces of gold a year and could potentially build that to as much as 100,000 ounces a year …

All for under $50 million.

There are a lot of great projects out there, but many of them don’t see the light of day because they need billions in funding to get them off the ground.

That’s not the case with Kobada.

#4 The Key to This Junior Stock Spike: ‘The Bharti Premium’—Again

The team at AGG (TSX.V: AGG; OTC:AGGFF) is an all-star group of mining industry professionals and financial whizzes who have spun iron ore into gold for decades…and are ready to do it again at Kobada.

Two directors, Sir Sam Jonah and Bruce Humphrey, have a hundred years of combined experience working the finances for mining operations. Jonah served as CEO of Ashanti Goldfields Company Ltd in the mid-1980s, while Humphrey was CEO and President of Desert Sun Mining and COO of Goldcorp, one of the world’s largest gold mining firms.

Working the heavy machinery is miner engineer Danny Callow, the former mining head for giant Glencore’s Copper Africa division, where he built  and operated huge copper / cobalt operations in Africa including one green fields to a 210,000 ton copper producer and the largest cobalt mine in the world.

But the real shocker here is Stan Bharti, the company’s new CEO. With thirty years of experience and a jaw-dropping resume, Bharti could lead AGG into a golden age.

His accomplishments include:

  • Started and founded Desert Sun in 2002 at $0.40 a share sold 2006 $750 million or $7.50 a share (TSE: DSM)
  • Started and founded Consolidated Thompson 2004 at $0.25 a share sold in 2011 for $4.9 billion or $17.50 a share (TSE: CLM)
  • Started Avion Gold 2008 at $0.40 a share and sold in 2012 for $400 million or $0.88  a share (TSE: AVR)
  • Started Sulliden 2009 at $0.40 a share and sold in 2014 for a merged value of $464 million or $ 1.47 (TSE: SUE)

Companies under Stan’s leadership have uncovered 20 million ounces of gold, more than 3 billion ounces of iron ore and 1.5 billion ounces of potash. He’s amassed more than $3 billion in investment capital for his companies and released countless billions to his shareholders. And he’s got an eye for gold: Bharti correctly predicted that gold prices would bounce back in the mid-1990s and again between 2003 and 2015.

His prior experience in Mali was with Avion, acquired for $20 million in 2008. In the middle of the biggest financial crisis in history, Bharti turned Avion around and sold it off for $500 million in 2012.

That’s a 20x growth rate. And Bharti’s ready to do it again.

“It feels like we are in 2003 again,” Bharti said, “at the cusp of a great run in gold and gold stocks.”

“I have always bought or acquired undervalued assets in emerging markets. This gives our shareholders the best potential for HUGE returns. AGG (TSX:AGG.V, OTCMKTS:AGGFF) fits in that category very well.”

With Bharti and his friends injecting $3 million into the Kobada mine project, construction could start soon, under Callow’s direction.

“The team is now complete,” he declared, “and we are ready to take this asset to the next level in one of the most bullish environments I have seen in my 30 year career in mining “

#5 Last Chance for Africa’s Best Discount Gold Opportunity

There’s nothing better on the junior gold scene than a company that’s in the advanced development stage.

That’s a major de-risking element.

We’re looking at a production starting point of 50,000 ounces per year. But that’s just the beginning. AGG is evaluating the potential for an increase in estimated annual production to 100,000 ounces per year.

Until now, the news flow was dominated by a brand new board of directors with its finger on the trigger of distressed assets sitting on massive mineral resources.

Now, the news flow may change to the gold itself because they’re targeting a completion date of December 2019 for an evaluation of up to 100,000 ounces per year.

AGG’s proved up resources of 2.2 million ounces alone are worth billions in revenue at today’s soaring gold prices. They’re worth billions even at yesterday’s prices.

And that 2.2 million ounces of mineral reserves is only what’s been proved up so far. This is a more than 200km2,  stretch of prime gold that could contain triple the resources as they haven’t even drilled 20% of the overall deposit.

What we’re looking at here is a junior gold company led by one of the biggest legends in mining, ready to hit construction in 6 months, and in the middle of a drilling frenzy that will be completed in a matter of weeks.

What is expected next is a flurry of news that might conclude in April with a final feasibility study. But by that time, it may already be old news, and any discount on this gold could have been diluted by a run on the company as it moves through the advanced development stage.

AGG (TSX.V: AGG; OTC:AGGFF) is sitting on 2.2 million ounces of mineral resources in Mali. That means that a small-cap company with a market cap of only $30 million is sitting on gold reserves potentially worth billions. Shares are under 30 cents right now, while gold prices are at $1500. That is the cheapest way to get in on 2 million ounces of gold—ever.

But what’s discount gold today, won’t be discount gold tomorrow. And what’s an advanced development gold project today, could potentially be an acquisition target tomorrow.

Other companies to watch for discount gold opportunities:

IAMGOLD (NYSE:IAG, TSE:IMG)

IAMGOLD is a fast-growing mid-tier gold miner on the fast track to become a major player in the gold mining industry.

Sure, the company has faced some recent setbacks, first by postponing its Cote Gold project and now by announcing a plan to lay off 32% of the workers at its Westwood mine. These moves, however, have kept stock prices stable and set the company up for a major rebound.

Many traders are bullish on IAMGOLD, expecting continued appreciation as well as steady growth from the ambitious company.

Newmont Mining Corp (NYSE:NEM, TSE:NGT)

Founded over 100 years ago, Newmont Mining Corporation (NYSE:NEM) is one of the leading mining companies in the world. The company holds assets in Peru, Australia, Ghana, Indonesia, Mexico, and around the United States. Primarily focusing on gold and copper, Newmont has steadily carved out a name for itself among those in the industry. While the company’s stock took a dip in the middle of the year, after closing a deal to acquire Goldcorp, it has seen nothing but positive news since.

Yamana Gold (NYSE:AUY, TSE:YRI)

Yamana, has recently completed its Cerro Moro project in Argentina, giving its investors something major to look out for. The company plans to ramp up its gold production by 20% through 2019 and its silver production by a whopping 200%. Investors can expect a serious increase in free cash flow if precious metal prices remain stable.

Recently, Yamana signed an agreement with Glencore and Goldcorp to develop and operate another Argentinian project, the Agua Rica.  Initial analysis suggests the potential for a mine life in excess of 25 years at average annual production of approximately 236,000 tonnes (520 million pounds) of copper-equivalent metal, including the contributions of gold, molybdenum, and silver, for the first 10 years of operation.

Pan American Silver (NASDAQ:PAAS, TSE:PAAS)

Pan American is a world-class mining operation with active projects in Mexico, Peru, Canada, Bolivia and Argentina. Though silver has seen better days, it is still a favorite among investors stocking up on safe haven assets.

Recently, Pan American made a major acquisition of Tahoe Resources, absorbing the company’s issued and outstanding shares.

Michael Steinmann, President and Chief Executive Officer of Pan American Silver, said: "The completion of the Arrangement establishes the world's premier silver mining company with an industry-leading portfolio of assets, a robust growth profile and attractive operating margins. We are also now the largest publicly traded silver mining company by free float, offering silver mining investors enhanced scale and liquidity."

Kinross Gold Corporation (NYSE:KGC, TSE:K)

Kinross Gold Corporation is relatively new on the scene, founded in the early 90s, but it certainly isn’t lacking drive or experience. In 2015, the company received the highest ranking for of any Canadian miner in Maclean's magazine's annual assessment of socially responsible companies.

While Kinross posted a significant loss in the fourth quarter of 2018, the company has turned itself around this year, posting significant year-to-date growth in its share price.

By. Meredith Taylor

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