The theory of profitable trading spreads available among African gold mining stocks proved correct for the period of December 15, 2011 to January 24, 2012 as all our picks reversed their spreads against the average rates of change in our producer's index. Individual prices reverted back to the index and provided trading profits. Avion Resources Inc. (AVGCF.PK) closed its spread of -17% to -11% for a 6% pickup against the index. Great Basin Gold is now -1% vs. -11% in December for a 10% pickup. Cluff Gold plc. (CLUGF.PK) rocketed to a +43% spread up from a -10% spread for a 53% pick up. Teranga Gold Corporation (TGZ-TO) reversed from a -5% spread to a +5% spread for a 10% pick up. Semafo Inc. (SEMFF.PK) closed its spread from -7% in December to -1% for a 6% pick up.
We continue to monitor news from 20 African gold miners and explorers. Summaries are available upon request. New spread trading opportunities are shown this month for Newmont Mining (NEM) with an 11% spread, Harmony Gold Mining Co. (HMY) 11% spread, Golden Star Resources Limited (GSS)12% spread, (CLUGF.PK 43% spread, and Resolute Mining Limited (RMGGF.PK) with a 33% spread.
Banro Corporation (BAA)
BAA advanced from $3.67 to $4.46 as the DR Congo elections passed without disruption and the company continued to ramp up production. Banro reiterated its production target of 120,000 oz upon achieving steady state production levels. The company has sufficient cash to take production to positive cash flow from operations. Banro's second mine, Namoya is on track to be producing gold within 18 months. In addition, Banro announced another 2 million oz of gold resources in the measured, indicated and inferred categories potentially bringing Banro's global resource to 13.3 million oz. The increased gold resource base offset share price increases to continue to position Banro as the value leader in the index. Banro offers investors access to gold at a $564 investor cost per oz based on market cap per oz and cash costs per oz. This is in contrast to the average of our overall index which shows the average investor cost per oz at $845.
Loncor Resources (LON)
Loncor announced the completion of its regional assessment of its 4,550 sq km Ngayu Greenstone belt property and defined 13 priority follow up targets. The completion of the BLEG analysis, which was operated under a technical services agreement with Newmont Mining (owner of 17.8% of Loncor) provided management with the confidence to deploy 5 drill rigs to the property. Loncor continues to delineate the Makapela deposits which are averaging approximately 10 g/t gold in the first two identified veins and explore additional prospective areas. According to a Loncor press release, "Interpretation … has enabled the main lithological units at Ngayu to be reliably mapped. 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."
Whetstone Minerals Inc. (WMITF.PK)
WMI has been indirectly benefiting from an improvement in sentiment toward Zimbabwe. According to Vanguardngr.com, "By 2016 … all the institutional investors polled expect to have some exposure to emerging Africa, with nearly one-third expecting to shift at least five per cent of their fund value there. In terms of popularity with investors, Nigeria and Kenya top the list, followed by Zimbabwe, Egypt, Ghana and Libya." Recently, Zimbabwe has been in the news with investments from Chinese and Indian investors.
WMI was advised that one of its directors, Robert Stan, had been issued a Notice of Hearing from the Alberta Securities Commission. Whetstone is not in any way connected with the allegations and has not been named as a party to the Notice of Hearing.
First Quantum Minerals Ltd. (FQVLF.PK)
We believe the recent $1.2 billion victory of First Quantum, in their international asset dispute with the DR Congo government and ENRC, provides an international safety net for frontier market assets and suggests the international community will not stand by and allow assets to be expropriated without appropriate grounds. "[It] is expected that First Quantum, ENRC and the DRC Government will settle all disputes relating to the companies being sold and their assets and operations in the DRC …" and further "and settlement of the current international arbitration in Washington and Paris …" Source: First Quantum news release
Investors in countries with strengthening, but still weak rules of law can take some comfort that international standards will prevail when host countries value their international reputations and access to capital.
Producer's Technical Analysis - Short Term Trade Opportunities
NEM is trading at an -11% spread to the producer's index. NEM is highly correlated to the producer's index and highly liquid. With our long-term bullish opinion of gold prices and solid fundamental value of NEM, we believe an 11% spread represents an attractive entry point.
HMY is trading at an -11% spread to the producer's index. HMY is highly correlated to the producer's index and highly liquid. With our long-term bullish opinion of gold prices and solid fundamental value of HMY, we believe an 11% spread represents an attractive entry point.
GSS is trading at an -12% spread to the producer's index. GSS is highly correlated to the producer's index although it has tended to underperform the index. Fundamentally we are bearish on GSS due to their $1,181 investor cost per oz, therefore we believe a 12% spread represents an early indication of future continued widening.
Cluff Gold plc. appears to have a new investor with what we believe was a significant investment by Citigroup Global Markets UK Equity Limited. It appears Citigroup bought 7.4 million shares for 5.6% of Cluff. Peter Cowley, President of Loncor was the past CEO of Cluff Exploration (predecessor to Cluff Gold plc).
RMGGF has generally outperformed the producer's index. RMGGF recently strengthened their balance sheet through a 136 million shares convertible note for share conversion. Although the market cap has escalated, their investor cost per oz of $824 is relatively close to the $845 average. We therefore expect a reversion of RMGGF price toward the average but continuing to outperform the index.
We continue to see fundamental value in Banro, Loncor and Whetstone. In addition we see short term trading opportunities among Cluff, Resolute, Newmont, Harmony and Golden Star.
Disclaimer: Cooper provides paid research and analytical services for mispriced publicly traded companies and investors including Loncor Resources Inc. and 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.