Evolve Canadian Aggregate Bond Enhanced Yld Fd ETF V.AGG

Canaccord Issues 79 cent AGG Buy Rating

[shorelunch]

....with another 14 cents when they get to 1MM oz in reserves

African Gold Group

Precious Metals and Minerals | Initiation of Coverage

The 'For' and 'Against'

AGG-TSXV | Price C$0.21  | Market Cap C$26.7M

SPECULATIVE BUY

PRICE TARGET C$0.79

Canaccord Genuity view

A robust project with exploration upside

African Gold Group is a gold developer, focussed on Western Africa, it is listed on the TSX Venture exchange and has a market capitalisation of ~US$25m. African Gold Group’s flagship asset is the Kobada gold project, located in Southern Mali. The project currently has ~750koz of defined reserve @0.87g/t and a full definitive feasibility study (DFS) was completed in June of this year. The study outlines a 10-year operation, producing ~100kozpa for the first 5 years, and an average of ~40-50mozpa for the remaining 5 years. Life of Mine AISC is estimated at US$782/oz, with development capex of US$136m. The Kobada project is a shallow, open-pit project, extracting oxide and transitional material to a depth of ~185m, and a low LoM strip ratio of 2.67:1; 90% of the material is expected to be free-digging, which underpins the attractive cost base. We calculate an asset value for Kobada of ~US$330m and expect construction to commence in late 2021, with first gold in late 2023. In the near term (6-9 months), we see the key share price driver as exploration success, as the company looks to drive the reserve base over 1moz. We calculate a fully diluted (based on 70% gearing of project funding) NPV/share of C$0.79 (vs the current price of C$0.21). We initiate coverage of the stock with an NPV-based price target of C$0.79 and a Speculative Buy rating (reflecting the early stage nature of the project).

Quality leadership Danny Callow was appointed CEO of African Gold Group in June 2020, after acting as the COO since joining the company in 2019. Danny is highly credentialed within the mining space (most recently as Head of African Copper Operations for Glencore PLC, Chief Executive Office and Executive Director of Katanga Mining Limited and Chief Executive Officer of Mopani Copper Mines PLC), and we believe his decision to join and lead African Gold Group should be seen as something of a validation of the potential within the company.

Funding to be confirmed Our base case target price is a 'fully diluted' per share value and is calculated assuming the company requires ~US$45m of equity to be raised (within a total funding requirement of ~US$150m, with the balance assumed to be raised via debt). We outline a number of funding scenarios in this note, and flag that even in the extreme case of a fully equity funded project, there still exists significant upside potential to valuation from current share price levels.

 

Near-term upside from the drill-bit

We believe the Kobada deposit has significant upside potential to add to reserves in near term (and add to resource over the medium to longer term). The near-term drilling plans are targeting the conversion of 575koz of near-surface, inferred oxide resource to higher confidence categories. Our read of the geology suggests there should be reasonably high confidence in high conversion of this inferred resource target, and we anticipate newsflow on updates to the resource model over the next 6-9 months. There are various permutations of how additional reserves could impact the mine plan. As an example of the upside potential, should a >1moz reserve base allow the final 5 years of the 10-year mine life to produce a consistent 100kozpa, this could see our asset NPV for Kobada increase from ~US$330m to US$400m (equivalent to an increase of ~C$0.14/share).

Sam Catalano  | Analyst | Canaccord Genuity Ltd (UK) | [e-mail] | 44.20.7523.8381

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