More RR on PRU
TGR: Can you highlight some of the companies you're investing in that have projects in Africa?
RR: We're following 70 or 80 exploration plays in Africa. Most are too low grade to ultimately attract our attention, but seven or eight deposits will almost certainly become mines.
With the number of companies active in West Africa, there's going to be a fairly active consolidation. In several situations, we think we're going to get what we laughingly refer to as a "double bump": the property will prove itself up, and then the company that has the property will be acquired, and then the newly acquired property will provide a growth profile to the acquirer. You get a bump for being acquired and a bump for the earnings visibility of the people who acquired it.
This theme worked well for us in the early 1990s and coming out of the 1998–2002 market. Our hope is that West African consolidation over the next five years will give us several double, triple or quadruple bumps.
TGR: Australia-based companies in the Sprott portfolio that are doing business in West Africa include Papillon Resources Inc. (PIR:ASX), Birimian Gold Ltd. (BGS:ASX) and Perseus Mining Ltd. (PRU:TSX; PRU:ASX). Are those the types of double bumps you're looking for?
RR: There's a range of discussions there. Papillion is a first-rate deposit. It's done a superb exploration job, and its deposit has size and grade. It could get over the 5 million ounce (5 Moz) market; it certainly has 3 Moz–plus potential. It could make a lot of money for its ultimate acquirer.
Birimian and Hummingbird Resources Plc (HUM:AIM) are attractive in their own right. They're not as large as Papillion, but the potential profitability of their deposits stands out. Perseus has had operational failings that have caused people to reflexively sell them out of disgust. They're just too cheap—the market is valuing their exploration and development assets at zero, and we don't think they're worth zero. A year and a half ago I would have said that Perseus would be a consolidator, but now I expect it will be consolidated because it's selling for 80% less than it did 18 or 19 months ago.
"Compared to the North American market, Australia's is very small and much more volatile. When outside money floods into it, the valuations explode and the market goes higher faster."
West Africa is superior exploration terrain. The amount of money being spent there and the quality of the people exploring there could yield the best exploration results of any region on the globe. It has a lot to give up, and we think it will give it up this cycle. Three or four players will come to dominate the sector. That theme has worked for us in Mexico, in Peru and in Nevada. We are confident it will work for us in West Africa.