We recently noted some potentially profitable patterns in our African Gold Mining Index that could provide trading opportunities. Prices of individual securities have tended to stray a considerable way from the index average and then tend to revert to the average. This pattern is as expected. What surprised us was the extent of the over-shoots and frequency of correction that provides traders with potentially profitable spreads and relatively rapid turnover. The companies with widening spreads currently available are presented below.
We continue to monitor news from these companies. Summaries are available upon request. We will highlight potential trading opportunities monthly. For those who require more frequent monitoring, please contact us.
Banro Corporation (BAA)
We continue to see great value in Banro Corporation as the low cost producer in our index. Banro poured its first gold in October 2011 and according to our estimates, has now poured approximately 5,000 oz. We expect cash costs to be in the $800 range during ramp up but fall to the $500 range in January 2012 as full production starts.
The DR Congo held its second democratic elections on November 28th, and although, not without controversy, Joseph Kabila secured his second term in office. We are watching closely to understand the level of satisfaction in the country.
Loncor Resources (LON)
Loncor has released two exciting news releases that demonstrate exploration progress. New drill results at Makapela have extended the first deposit and demonstrated additional high grade intercepts including 2.03 meters grading 26.1 g/t Au, 0.93 meters grading 57.8 g/t and 3.08 meters grading 7.13 g/t. In addition, Newmont’s BLEG survey results of Loncor’s 4,550 sq Km Ngayu greenstone belt have been compiled from the second in-fill BLEG survey. This news release is a must read as it demonstrates the massive potential of Loncor’s projects. “For example, delineation of the banded iron formation (BIF) units, important as chemical and physical traps for gold-bearing hydrothermal fluids, has confirmed the presence of approximately 140 km of prospective strike on the project area. The extent of the basalt-dominated terrain which hosts the mineralization at Makapela, has also been accurately mapped using the radiometric data, and intrusives into the greenstones (which may have influenced the circulation and focus of mineralizing fluids) have been identified. Structurally-favourable targets, including areas of folding and probable thrusting in the BIF, and early, deep-seated structures which may have acted as feeders for the mineralizing fluids, have also been interpreted.” (Source: Loncor press release December 12, 2012 should provide many positive news results from the current geological understanding and 5 drill rigs turning on the Ngayu property.)
Producer’s Technical Analysis – Short Term Trade Opportunities
Avion (OTC:AVGCF) has been beaten up more than our African Gold index in spite of encouraging new drill results. Avion shares appear oversold, having declined 32% vs. the index’s 15% decline. We believe Avion shares could be positioned for a recovery vs.. the index, however, we caution that we have considered Avion shares to be overvalued throughout 2011.
Great Basin Gold (GBG), with its estimated cash costs of $700 per oz and market cap per oz of $20 is relatively cheap. At an 11% spread to our index rate of change, Great Basin could provide investors with some relative upside potential.
Cluff Gold (OTCPK:CLUGF) provides a 10% spread from the index. With an estimated $800 cash cost and $45 market cap per oz, Cluff could correct and provide upside potential for investors relative to the index although we will wait for further widening.
Teranga (TGZ-TO) recently announced great drill results with great widths of 131 meters and 87 meter intercepts. Grades are minable in the 3 g/t range. With a spread of 5%, Teranga is tracking closely to the index but could outperform in the near term. Teranga reports higher costs than budgeted but expects production to increase and costs to decline going forward.
Semafo (TSX-SMF) shares have declined to a spread of 7% below the index. While 7% is a smaller spread to the index, the company shares have tracked closely to the index and may warrant some attention, watching for a further spread and potential buying opportunity. Semafo has declared an inaugural dividend and production and operating progress. Cash operating costs increased only 9% in the latest quarter and the company announced progress in moving toward increased production.
Disclaimer: Cooper provides paid research and analytical services for mispriced publicly traded companies and investors including Loncor Resources Inc., Banro Corporation and Whetstone Minerals. All editorial content and opinions are those of the author. We do not in any way offer investment advice or suggest buying or selling any securities mentioned. Cooper or affiliates of Cooper may buy, sell or own securities and derivatives of securities mentioned in this report or any other report we produce. Cooper is not responsible for any errors or omissions in this report. All statements, other than statements of historical fact are forward-looking information. Forward-looking information reflects our current beliefs and expectations for the company and is based on publicly available historical information. Our beliefs may change as market conditions, political conditions or company specific conditions change. Cooper is not responsible for any losses that may be incurred by investors who rely on this report or other reports. Please consult your financial advisor before making any investment decisions.