Highly prospective tenements and management teams with experience in African gold exploration are proving to be the favoured combination for attracting capital, according to the African Gold Book compiled by PCF Securities.

The booklet stemmed from market observations that African-focused gold companies operating at low cash costs and low levels of debt with strong production growth profiles were still trading at discounted prices.

PCF Securities resource analyst Travis Baroni said many companies were offering a discount on their price by contrast to their cash-flow based valuation.

Companies in the developer stage had suffered from significant share price falls following a 2-3 year period of rapid growth in gold discoveries and strong gold prices.

“Several of these companies have now defined large, quality resources that are in feasibility studies,” Baroni said.

“The challenge of raising capital in the current environment makes this category a focus for merger and acquisition activity.”

The increasing storage of gold by central banks for wealth was supporting the outlook for gold mining investment, in particular in underexplored regions such as Africa.

“Africa is a great place to be looking for gold,” Baroni said.

“You can’t find deposits of the nature that people are finding in developed goldfields, you just don’t find million ounce deposits sitting here in the ore body with long life.”

By assessing gold exploration and Africa, Baroni selected his top pick of companies that represented value in the sector.

In the explorer range, companies which offered value but had faced price reductions due to general market conditions included Taruga Gold and Middle Island.



“You look at the value the market is placing on those companies and you look at the prospectively of their projects and there seems to be a disconnect,” Baroni said.

There are also a number of companies with strong projects in the developer stage, including Ampella Mining, which still need to find a solution to fund their projects.

One of the success stories in the developer category has been PMI Gold, which recently secured a $US30 million ($A29 million) facility to support pre-development activities at its Obotan gold project in Ghana, while it finalises a funding package to kick-start operations.

As it becomes harder to source finance in this environment another attractive way of obtaining funding is to seek support from larger gold producers which may be looking to bolt on more production capacity.

An example of this occurred in August when Endeavour Mining pounced on African gold player Avion Mining. Endeavour operates two gold mines in Ghana and is building a third mine in the Ivory Coast, while Avion owns the Tabakoto mine in Mali and has two gold exploration projects in Mali and Burkina Faso.

In the African gold book, Baroni revealed that Ampella Mining was trading on an extremely low equity value per ounce of $30 for a developer.

Since listing on the Australian Securities Exchange in 2007, Ampella Mining has defined a 3.1 million ounces at 1.5 grams per tonne, using a 1gpt cut-off at its Konkera green field discovery in Burkino Faso.

Ampella’s flagship project, Batie West, is located at the base of the country and holds the Konkera resource.

“The regional exploration opportunities should not be underestimated and it is possible additional resources will be defined over the coming drilling seasons,” Baroni said.

Ampella managing director Paul Kitts said the company had a focused regional exploration program under way.

The board was also recently restructured with a senior management team equipped to take the project from an explorer to a producer.

“We are proven explorers. We have a highly prospective tenement package. We are a near-term producer. We have a management team with more than 100 years of African experience,” Kitts said.

“We are well- funded with a strong cash position, with more than $43 million at the end of the June quarter.”

Burkino Faso is Africa’s fourth largest gold producer with 22% of the country hoisting the prospective Birimian greenstone belt.

There are six operating gold mines in the country, which all came on line in the past four-and-a-half years and another six prospects tracking towards production, with reserves ranging from 2 million ounces to 5Moz.

Burkino Faso has been stable since 1987 and is ranked among the top three of African’s 54 countries, boasting solid infrastructure and a new mining code.

Ampella envisages a 10-year mine life, producing 150,000-200,000 ounces per annum, running through a 3Mtpa plant and regrind circuit.

The first gold production is targeted for 2015.