African Gold Group (CVE:AGG) CEO on New Financing Rounds and Recent Stock Surge
African Gold Group, Inc (TSX-V: AGG) Chairman and CEO Stan Bharti joins Midas Letter to outline the big uptick in the gold price and how the trend effects junior gold mining and the company. African Gold Group is developing a gold platform in West Africa with its principal asset being the Kobada Project in southern Mali. The official resource in Kobada is 2 million ounces, but the CEO sees the potential for a far greater resource. The economics were calculated at a gold price of $1,200 with a rate of return of almost 50 percent and a one-and-a-half-year payback. At the current $1,500 gold price level, those numbers dramatically improve as the current cost for AGG is under $600 per ounce. Mr Bharti explains “we’re going to start small, because the gold market is still starting; we’ll start at 50,000 ounces. The vision is to expand gradually to 100,000 to 150,000 ounces, depending on exploration results.” The CEO also outlines the several private placements the company have under taken in recent months – the latest for gross proceeds of approximately $3 million.
Should I buy gold? Should I buy ETFs? Should I buy majors? And the answer is, buy junior gold stocks, because they will give you the most leverage. If you want a 10X return, buy junior gold stocks. – Stan Bharti, African Gold Group CEO
James West: Joined now by Stan Bharti, Chairman and CEO of African Gold Group. Stan, welcome back.
Stan Bharti: Thank you very much. Good to see you again.
James West: You too! It’s been a number of years; we’ve just come out the other end of a nuclear winter of mining equities. But African Gold Group has been on fire lately, and you just today announced that you had completed a $5 million private placement. Tell me what’s going on with the project, where is it, what are the metrics?
Stan Bharti: So let me start by first telling you that we see a big uptick in the gold price and the gold sector. The psyche has changed, and you’re right; we came through these three years of winter, and it was a long winter. I mean, gold stocks, I’ve never seen them drop so fast; they were down 90 percent, 80 percent, especially the juniors. So the biggest leverage is the juniors.
And you know, I’ve been fortunate. We first got into the gold market in ’95, we called it right, we did it very well. Then in ’03 we caught the gold market, did it. And all the money we made, all the returns to our shareholders, I mean the junior gold sector, where you have a good asset, somewhat undervalued, which needs good management teams, good operational skills, but the returns are phenomenal.
So one of the best assets we have in our group now, fortunate to happen, is African Gold Group. And we’ve been in Africa for many years; we’ve had projects in Ethiopia, we’ve had projects in Namibia, South Africa, Zimbabwe, West Africa. And one of our most successful projects in 2010 was a company called Avion Resources.
James West: Sure, I remember that.
Stan Bharti: You remember that. We started that, we bought an asset from Nevson for $20 million, invested at $0.40, right at the peak of the financial downturn in our wake. Stock went to $0.08 and then eventually, we built the company into 150,000 ounces and sold it to Endeavour for $500,000.
James West: You mean, half a billion.
Stan Bharti: Half a billion.
James West: Right.
Stan Bharti: So what did I say, half a million?
James West: Yeah. I was going to say, That was a deal! [laughter]
Stan Bharti: $500 million, just to be sure.
James West: Yeah, that was great. Well, that was a really exemplary transaction, and that’s not your first transaction, either. You’ve done this a few times in Africa and elsewhere in the world.
Stan Bharti: We like Africa a lot, because the assets are undervalued and they’re cheap; but we’ve done several transactions. Our first big transaction in gold in this century was Desert Sun, which was in Brazil, the Jacobina mine, which we acquired for very little money from Anglo. And we turned it around, fixed it, built it, sold it to Yamana for over $700 million in ’06. We have a project called Shahuindo in Peru, which we sold to Rio Alto, which actually became Tahoe, a 10X return. And so African Gold is in southern Mali where Avion was, the Tabakoto Mine, and what I like about this project is the previous management and Board came to us three years ago and said, Listen: We need help. This project is suffering, we can’t raise capital.
And that time we put in $5 million of our own capital, changed the Board, brought in some powerful guys, including a guy called Sir Sam Jonah, who was head of annual shandy for many years, lives in Ghana, several of the senior people. And then the last two years have been tough, but we cleaned up the capital structure, cleaned up all the old debt, and now we see that Mali, the third-largest gold producer in Africa, this project is ready. It’s fully permitted, there’s a feasibility on it, there’s a full 43-101 report on it.
And so what we did is, we brought a good technical team, operational team, hired a guy called Danny Callow, who used to be with Glencore, one of the senior guys in Africa; he’s with us now. Brought a top geologist called Andy Rumpole, and myself went in as Chairman and CEO because I believe in the project, and I’ve called gold very well.
And so now we’re in the process now with this last $5 million we’re raising now, we’ll have enough capital to start the – update the feasibility, do some more drilling, metallurgical test work, clean up the infrastructure, and we’re ready for construction.
James West: Sure. Does the new sort of gold normal at $1,500 an ounce, does that change the economics of Kobada and make it actually even more attractive?
Stan Bharti: Kobada is, first of all, just on Kobada, it’s a big belt. And one of the nice things about Kobada is there are many of these artisanal workings there. And they’re very good, because they point that this huge belt and there’s gold all along the belt. Our official resource is 2 million ounces; a million is measured, indicated, and a million is inferred. But we see the potential for a far greater resource, because it’s on a small part of the property.
The economics were done at $1,200 gold, which showed, you know, rate of return of almost 50 percent, about a one-and-a-half-year payback. At $1,500 gold, the numbers look phenomenal, obviously, because our cost is under $ 600 an ounce. All-in cost is under $800 an ounce. So you’re making $600 or $700. We’re going to start small, because the gold market is still starting; we’ll start at 50,000 ounces. The vision is to expand gradually to 100,000 to 150,000 ounces, depending on exploration results.
But we think we have a tiger by the tail. A big belt, permitted, capital is about 45 million, which we can finance 60 debt, 40 equity. Malian banks are very friendly to gold, very supportive. There’s local banks that will give you credit. So, we’re very excited about it.
James West: Sure. Okay, so looking at, like, you’ve done three private placements in very short order; is this representative of a change in the weather for gold investors globally? Like, I mean, you even had Mark Mobius on Bloomberg the other day saying, Buy gold at any level. And you know, for a guy like that, who’s like 30 years with Templeton, to come down the food chain and say ‘buy gold’ is like, quite remarkable, because it’s only three years ago when all these guys were saying ‘sell gold’.
Stan Bharti: I was at Fox News about 10 days ago, same thing with Stu Varney was asking about gold. Definitely, I was at the Hamptons Conference, a private equity conference; gold was sort of the air. And I think the psychology on gold has definitely changed. People are looking at it again. But more importantly, you know, I was asked at Fox, Should I buy gold? Should I buy ETFs? Should I buy majors? And the answer is, buy junior gold stocks, because they will give you the most leverage. If you want a 10X return, buy junior gold stocks.
James West: Right. You’re going to have to tell me that I’ve actually been buying them since September, because I sniffed a change in the air myself.
Okay, so, African Gold Group is, you know, now fully capitalized. The price of gold is at $1,500. The normal sort of process in the emergence of another phase of a gold bull market is, first the bullion takes off, then the majors take off, then the mid-tiers, and then the juniors. We haven’t seen the move in the juniors, yet.
Stan Bharti: You know, that’s like, look at Belo Sun, another stock that I’m involved with, I’m one of the founders of. It’s moved up from $0.30 to almost $0.70; today it’s down to about $0.42. So people are paying attention advanced juniors. That means permanent, partly permanent, full feasibility. The exploration juniors are still a way off, I think. And you’re absolutely right: take the mid-tiers like Kinross – it’s almost doubled. And the majors will also move, I think. But you won’t see a big move in the majors as you’ll see in the junior advanced junior companies that have a resource and a technical study and are in good jurisdictions.
James West: Yeah. You know, now, on that point, it’s interesting: because we’ve gone through such a long period of no financing available to any juniors, there are remarkably few choices around of quality junior golds, quality junior exploration projects, quality junior mining projects, that have been able to advance in the last three years. So there’s really not a lot to choose from.
Stan Bharti: That’s partly true, and because a lot of them have disappeared. Some of them have moved into cannabis, as we all know. It was a great trade. I remember the dot com era when the gold companies all changed their names to, you know, dot com.
James West: Yeah.
Stan Bharti: And did that. But for example, with the Forbes of Manhattan Group, we have, we’ve been lucky that we have our own capital. So I’ve kept these juniors alive through tough times, and those funds on Bay Street have also disappeared; very few gold funds left. It’ll come back, but there are individual investors like Eric Sprott, smart investors, but the funds have really disappeared. So we have great, we have, for example, a company called EuroSun; it’s in Romania, the second-largest gold resource in all of Europe. We just got the exploitation permit, the first exploitation permit granted by Romania in 15 years.
James West: Wow.
Stan Bharti: So we’re ready to now move on it. There’s more interest in this company, and this company had a market cap of 200 million in 2010, and now it’s got a market cap of 20, 50. So that tells you how the world has changed.
We have a great, Belo Sun I mentioned in the junior exploration. We have a tiny company called QMX: 200 square kilometre belt right next to the Sigma Mine in Val D’Or, with 20 historical mines on this camp. Again, the stock was $1.00; it’s trading at $0.05, $0.07. I love this stock. I mean, we’ll definitely have big discoveries, there.
James West: Okay. So, some names to put on your list. All right, Stan, we’re going to leave it there for now. We’re going to come back to you soon, and hopefully we’re going to visit the Kobada project in one way, shape or form. Thanks for joining me today.
Stan Bharti: We’re planning a trip in October. You’re welcome. Thank you.
James West: Fantastic, thank you very much.
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