Investing in West African gold deposits

Investing in Gold

Like many others, I can assume you've heard of gold and how only wealthy people can own gold 🤔 - but are recent market events presenting an opportunity for investors to secure gold for their investment portfolios at no minimum? 👀💎

In Africa, from the South to the West, the gold rush may soon be fuelled by the upcoming African Mining Indaba, featuring mining companies and explorers dealing with all sorts of commodities, including gold. In this article, we look into companies exploring and creating value for investors in the West African region 🌍, repositioning themselves for short- to long-term growth as the global dependence shift unfolds.

West African Resources Ltd (WAF)

Burkina Faso 

While South Africa is among the biggest gold-producing countries, a region boasting at least twice South Africa's output is West Africa. One of the countries considered rich in gold is Burkina Faso.

West African Resources is one of the recent West African gold producing companies that produced its first gold through its Sanbrado gold operations in Burkina Faso in 2020.

Rallying behind the gold spot price through 2020 and 2021, as the global pandemic took a toll on the global economy, West Africa’s share price surged by 226% to $1.04, from lows of $0.46 in March 2020. This was followed by a volatile year as nations globally remained uncertain about the economic growth and inflation - moving into 2022, the gold producers' production increased by 112%, closing its 2021 fiscal year (FY21) with a total output of 288 000 ounces (288 Koz) of gold.

West Africa had a net profit of AU$214 million at the end of its FY and 1.7 million ounces of gold in reserve. The company's cash balance by the end of March 2022 was AU$212 million.

Outlook

In its FY21, the company acquired the Kaika gold project, a gold mine in Burkina Faso, and a capital raise of AU$126 million through an issue of 101 million shares. According to the FY22 guidance, the company sees a production of around 220-240 Koz at US$1040-1100/oz.

Unlike a hedged mining company that may not benefit as much from higher gold prices in revenue (these companies rather sell gold at a fixed price to secure, protecting them from falling prices), for an unhedged mining company like West African Resources, the stock market and cash flow environment may remain volatile since they are more reliant on the gold spot price.

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Tietto Minerals Ltd (TIE)

Ivory Coast  

It's the Tito Mboweni Sha-Sha 🤑 moment, like a rapper in South Africa would say as money flows in 😎💰 Tietto Minerals is a mining exploration company exploring the West African region. The company secured AU$130 million through a private placement of 260 million shares, and the transaction is expected to be settled by May 2022.

Following the capital raise, the company's recent drilling results from the Abujar Gold (AG) project in Ivory Coast showed the potential for more gold, with the second phase of the exploration expected to be completed by May 2022.

To diversify its portfolio, with a cash balance of AU$38 million as of March 2022, Tietto is expanding its diamond project within the region. Investors are expected to receive an update on what the company calls the "drill and build" strategy as the company “aggressively” advances its 75 diamond drilling projects. Gold production is set to commence in the fourth quarter of the 2022 calendar year (Q4 CY22) with a target of reaching 260 000 ounces in the first year of production, and 1.2 million ounces within six years.

Outlook

From a perspective of hedging, where one offsets losses, mining companies with a diversified portfolio may act as a hedge for commodity investors, dependent on the companies' differences in demand and prices.

Adding to the above, explorers or exploration mining companies trading at a low price may be more volatile than the commodities themselves since these companies may have little to no income. They may also be somewhat diluted in an attempt to raise more capital.

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Gold mining companies and gold price

While gold stocks may fluctuate relative to the commodity price, volatility may differ from one company to the other, depending on the size of operations and reserves. Between money and gold, as inflation continues to rise, despite the current volatility, gold stocks may present themselves as a safe haven against inflation in the long term.

Given the difference in volatility, ETFs such as ETFS Physical Gold ETF expose investors directly to the gold market, as the ETF tracks the gold spot price.

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Informed decision

The market sell-off that may have been triggered by uncertainties in inflation data and the central bank over the past few weeks and months may have created an entry point for investors in gold stocks. With gold still being one of the most valuable metals, and the dollar index aiming to hit a 19-year-high as the Fed eyes more interest rate hikes, these factors give the currency more power against gold as prices plummet.

What's also important to understand is that countries continue to hold gold, the commodity, as a wealth storage asset/precious metal, despite the recent market volatility.

Apart from being a storage of wealth and a defensive measure against inflation, gold is also one of the critical metals used in electronics. The metal may thus see a rise in demand, especially considering what's happening in Russia (as one of the biggest gold producers). The Russia/Ukraine conflict is fuelling the global dependence shift and may encourage more countries and companies to seek alternative suppliers to fill the gap.
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Sources – EasyResearch,West African Resources Ltd, Tietto Minerals Ltd, ASX, ETFS Physical Gold ETF. 

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