*If you have not already subscribed to our weekly interactive newsletter, please visit: https://equedia.com/newsletter/
For the full interactive edition, pleaseCLICK HERE
If you're not a long term investor, the following piece may not be for you.
In the first quarter of 2012, the gold miners - in particular the juniors - severely underperformed the S&P.
Despite gold reaching new highs year-over-year, gold miners have been the most oversold equities in the last three years while overall equities have been overbought.
In the past decade, the long term trend in the miners vs. equities has been biased towards the miners. It wasn't until the past few years that this has changed. However, this change came at a time when gold not only hit new all-time highs, but central banks and countries around the world began hoarding gold (see Judgement Day is Coming.)
So what's wrong with this picture?
Everything.
But that means a very exciting opportunity to own incredibly cheap and oversold stocks in a sector that has been growing more than any other.
Practically every miner and every junior explorer - regardless of project merit - has taken a major hit.
Right now, there is a company that I own shares above C
.64 but is now trading at an incredible discount of C
.16, with a market cap of less than C$10 million. They have a joint venture agreement with Kinross Gold (Canada's third largest gold producer) and a very promising land package with multimillion ounce potential in an extremely prolific area where the delineation of sizeable gold ounces are common.
But before I tell you about this company, I want to go back and share with you a story that not only represents what this company could become, but also gives an example of how patience in the right projects can truly pay off.
Back in 2006, a new mine in Africa and a steady rise in the price of gold lifted Red Back Mining from obscurity.
Led by Rick Clark, Red Back went from virtually no revenue in 2005 to $45 million just a year later - on the strength of a new and promising mine in Ghana, the Chirano mine. The Chirano mine achieved commercial production in October 2005 and is the start of what propelled Red Back Mining share prices into new territories.
Seven years ago, shares of Red Back Mining were trading at less than $2. Over the next five years, Red Back continued to reward its shareholders with tremendous returns, closing at nearly $35 before it was finally sold to Kinross Gold for nearly $7.2 billion.
If you were a Red Back Mining shareholder five years before its takeover and invested $10,000 at $2 per share, you could have made $165,000. That's a gain of 1650%.
Red Back was a prime example of the rewards possible to those who invest with patience.
That's why getting involved with companies before they ramp up can return investors with big rewards - especially in a market that is completely oversold.
Gold prices during the Red Back takeover were nowhere near where they are today, making opportunities in today's oversold gold market all the more exciting.
The Red Back story is not just a lesson in patience, but it directly relates to our second feature company of 2012.
That's why I am reintroducing you to:
Abzu Gold (TSX-V: ABS)(OTCQX: ABZUF)
(I currently own shares in Abzu above C
.64 and have yet to sell a single share)
You see, Kinross wanted Red Back's operations in Ghana for the ability to use those projects to significantly increase their resources and reserves. But with soaring gold prices, Kinross must focus on increasing production, leaving many of their stronger targets acquired during the Red Back takeover sitting on the back burner.
However, through strategic positioning with management, Abzu was able to strike a deal on some of the more advanced concessions acquired in the Red Back takeover.
The Kinross Gold Joint Venture
This is where it gets serious.
Abzu Gold (TSX-V: ABS)(OTCQX: ABZUF) did a deal last year with Red Back Mining Ghana Limited, a wholly owned subsidiary of Kinross Gold, for the right to earn a 51% interest on 10 concessions held by Red Back.
Once Abzu has spent US$3,000,000 on exploration on these concessions, Abzu and Kinross will form a joint venture in which Abzu will manage and to which both companies will contribute proportionately to their interest. That means less dilution for shareholders and a major backing from Canada's third largest gold producer.
Having Kinross as a joint venture partner gives Abzu a significant strategic opportunity for the future development of a major discovery.
The 10 concessions in this deal all have some serious potential. They were all valued in the Red Back takeover.
 |
| Location of Red Back JV properties and current Abzu concessions in Ghana. click to enlarge |
The most advanced targets are on the Nangodi and Yameriga concessions where previous explorers have identified numerous targets, including the Nangodi Main Zone where prior drilling intercepted (see picture below):
- 52m @ 3.24g/t Au (NGRC009)
- 26m @ 2.24 g/t Au (NGRC017)
- 51m @ 2.4 g/t Au (NGRC018)
- 13m @ 2.48g/t Au (NGRC019)*
*(based on incomplete, unpublished historic data provided by Red Back. This information is historic in nature and is not 43-101 compliant. A Qualified Person has not reviewed drilling or sampling procedures or QA/QC undertaken at the time of drilling. However, Abzu has no reason to doubt the validity of the information)
 |
| Simplified cross section from the Nangodi Main Zone showing mineralized intercepts in quartz-feldspar porphyry rock. click to enlarge |
These targets are near the Burkina Faso border (well-known for its resource rich properties with producers such as SEMAFO) and are approximately 30 km southwest of and along strike from the Youga Mine where Endeavour Mining Corporation produced 87,264 ounces of gold in 2011 and forecasts to produce 78,000 to 88,0000 ounces at a cash cost of US$660 to US$700 per oz this year.
Recent drilling has already proven that Nangodi could be something big. Last year, Abzu drilled:
- 73 m @ 1.15 g/t Gold
- 44 m @ 1.91 g/t Gold
- 66 m @ 1.53 g/t Gold
- 44.5 m @ 1.99 g/t Gold
Mineralization remains open in all directions including depth.
Not only do the drill results confirm the impressive results from historic work at Nangodi, they also open the door for continued expansion of its sizeable gold mineralized system. In addition, the newly identified high-grade zone presents Abzu with an exciting opportunity of finding more gold ounces in a smaller area.
This recent deal with Kinross is what the industry experts are excited about...but it's not the only reason.
As a matter of fact, I believe that Abzu's other 100% owned concessions may be even more significant.
Huge Resource Potential on Four Prolific Belts
Ghana is undoubtedly one of the world's most mine-friendly jurisdictions. It is Africa's second largest gold producer and the ninth largest in the world containing many multi-million ounce, 1-2 g/t Au, bulk mineable gold mines operated profitably by both major (Newmont, Anglo, Goldfields and Kinross) and mid-tier (Golden Star) companies. It's also home to some of the world's most prolific gold belts, including the famous greenstone belts that have yielded 120 + million ounces of past production.
Despite large historic production, the discovery rate in Ghana is still increasing as numerous multi-million ounce, at-surface open pit gold discoveries have been made in the last 5 years, including Keegan Resources Essase Project. Back in 2008, Keegan was able to discover and outline a resource of over one-and-half million ounces of gold in less than year. Because of the geology in Ghana, many other explorers have been extremely successful in finding more gold.
Here's what Rick Clark, ex-CEO of Red Back, had to say in an interview from 2007 on mining in Ghana:
"We've had the best of all possible worlds at Chirano. We were very fortunate in going into Ghana. Doing mining in Ghana is like Africa for beginners. We were able to build that mine in a very reasonable time-frame for a very reasonable cost because of the well-established democratic and regulatory regime in Ghana."
In the past 10 years, emerging new belts with new discoveries of 30 million plus ounces have either been discovered or mined. Small discoveries have turned into major deposits with minimal effort. For example, Newmont's Ahafo project 10 years ago was merely a surface anomaly. Now it is one of Newmont's flagship projects in Africa.
That's the type of geology that exists in Ghana.
And that's why Abzu Gold Ltd. (TSX-V: ABS) (OTCQX: ABZUF) has great potential to capitalize on that opportunity.
The real excitement on Abzu lies in the opportunity to build a large resource on its concessions that total 1,100km2 and that span all four prolific gold belts in Ghana.
The Abzu Concessions: Significant Exploration Upside with Diversified Risk
Through strong relations with Ghana, Abzu's management has been able to acquire very high-potential properties situated amongst some of the world's top deposits.
 |
| Otumfuo Osei Tutu II, King of Asante greets Gordon Neal, Chairman Abzu Gold Ltd. February 2011 |
Asankrangwa Belt - Mpatasie, Golden Reef, U&N Concessions
Located along Ghana's prolific Asankrangwa Belt in Southwest Ghana, Abzu's Mpatasie, Golden Reef, and U&N concessions lie near:
- The Obotan deposit (previously mined by Resolute Mining)
- The 3 million ounce Essase deposit operated by Keegan Resources
- and within a 100-kilometre radius of Kinross' Chirano mine, Newmont's Ahafo mine and Anglo-Ashanti's Obuasi deposit (nearly 70 million ounces of gold combined!)
Abzu Gold Ltd. (TSX-V: ABS) (OTCQX: ABZUF) has both an extensive and strategic land position in the Asankrangwa Belt, a structural zone 8-10km wide in the center of the Kumasi Basin with numerous shears that host gold vein systems.
Keegan Resources has the Esaase gold project approximately 8 km northwest along strike from Abzu's U&N concessions, while PMI Gold's Obotan project lies just 8 km southwest of Abzu's Mpatasie-Golden Reef concessions.
Both Keegan Resources and PMI Gold are prime examples of companies who were able to quickly delineate sizeable ounces within Ghana's prolific gold belts, translating into soaring share prices and rewards for early shareholders.
The Asafo Concession
The Asafo Concession is yet another one of Abzu's properties that show strong potential and is 100% owned by Abzu. While still at an early stage, I believe Asafo has the potential to be a big resource.
The Asafo concession is situated in the Kibi-Wineba Belt, an area believed to be one of the earliest locations for gold production in Ghana and the site of extensive alluvial workings.
Drainages along the flanks of the adjacent Atewa Range were the site of extensive alluvial operations from 1898 through the early 20th century. In the 1920s, the multi-level Kibi Mine was developed along narrow high-grade veins to a depth of 160 feet. It reportedly produced about 200,000 oz of Au and lies approximately 5 km west of the Asafo concession.
Recent drilling by Abzu last year has indicated the presence of a large gold mineralizing system at Asafo, with the first early results returning 4.72 g/t gold over 20.00 metres at a vertical depth of only 28 metres.
Drilling and Catalysts for Growth
Abzu already has begun work for up to 12,000m of combined Reverse Circulation (RC) and Diamond Core drilling on their Golden Reef, Mpatasie, U&N, and Asafo concessions .
The targeted vein systems being tested by Abzu are anticipated to be analogous to those discovered by Keegan Resources at their Esaase deposit, just northeast of Abzu and PMI Gold's Obotan Project to the southwest.
Given all of their priority targets on their different concessions, expect a wave of strong news flow coming from Abzu this year, including a new resource calculation on the Nangodi concession in the next few months.
Proven Management Team Reduces Execution Risk
All of these properties would be meaningless if there wasn't a great mining group to back it all up.
While there are many great mining teams loaded with geologists capable of advancing projects, those who are capable of raising money are limited.
Too often I see great projects destroyed by teams comprised only of geologists with no market experience. I can't stress enough how important it is to have a management team with both strong market experience and geological know-how. Abzu has that.
The combined experience of Abzu's management and directors speak for itself. Together, these guys have collectively marketed billions of dollars - I am not kidding - and have found tens of millions of ounces in gold discoveries.
A successful company doesn't happen by accident. It is created by the results of a very specific and disciplined plan to create a high-performance investment for its shareholders.
Everything about Abzu - from its tight capital structure...to its impressive suite of projects...to its strategic partnerships with Kinross and Ghana - owes to the experience and talent that the company's executive and management team brings to the table.
Abzu is a company recently created by people who have been around the block, and who have seen what does and doesn't work when it comes to running a quality junior mining company. They have drawn on this experience to create a new company made for those that invest in this sector.
Whether their background is in geology, engineering, social issuess or investor relations, each member of Abzu brings with him a deep contact base and a passion for creating value for the company's shareholders. More importantly, they are people who have succeeded in the past and have continued to succeed.
The Bottom Line
Abzu Gold began trading on December 22, 2010. That's good because they carry no baggage, no debt, and it gives potential investors a chance to get in at the ground floor - especially considering how oversold the junior gold market has become.
Ghana is already a gold mining powerhouse and I think given the geopolitical climate and its world renowned mine-friendly policies, it will continue to reward foreign investors with breakthrough discoveries of multi-million ounce deposits.
I go back to the Red Back and Keegan Resources stories to show you just how fast a company can grow in Ghana with the right people and the right projects.
Gold discovery rates have been dropping by 4 million ounces a year for the past three decades, so you can expect any new discoveries (especially in a mine-friendly, low-cost jurisdiction like Ghana), to grab a lot of attention from the industry.
Gold prices are at all-time highs and there's no sign of stopping this run in the near future. I have said it many times over that the next leg of the precious metals rally is already beginning. The speculative plays will be the ones that reward shareholders with the biggest returns.
Like all juniors, there is risk involved. Abzu is an exploration story in the early stage of the cycle. However, given the multiplicity of targets, the risk is diversified with a higher probability of success. Further, the location of the project in Ghana makes the company compelling.
Abzu shares are extremely cheap ($C0.16) relative to where they have been since they started trading (C$1.20 at its peak, with a 52-week high of C
.80). Abzu has never traded this low before and all warrants are above C
.40. There are 10 million warrants at C
.40 expiring April 12, 2012 and management has never exercised or sold any warrants.
(Other warrants include 2.88 million at
.90 due Aug. 15th, 2012, 200K at
.60 due Nov. 30, 2014)
Abzu's management team is incredibly strong, their land position shows significant potential surrounded by numerous deposits and mines, and the drills will be turning. Not only is Abzu Gold a new story capable of turning into a breakthrough, its well under the radar and trading at an all time low.
Anyone selling Abzu at these prices are more than likely losing money, which means buyers at these levels can take advantage of that.
Abzu Gold Ltd.
Cdn Symbol: (TSX-V: ABS)
Current Share Price: C
.16
US Symbol: (OTCQX: ABZUF)
Current Share Price: US
.15
We're biased towards Abzu Gold because they are an advertiser and we own shares at higher prices. We also own options in the company. You can do the math. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Reports, including Abzu Gold. It's your money to invest and we don't share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn't mean they all will.