AEX Gold - 60%+ upside?...

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On 31^st July this year it was “Admission And First Day Of Dealings On AIM” for AEX Gold Inc (AEXG, TSXV:AEX), with founder and CEO Eldur Ólafsson emphasising “a highly exciting moment for AEX Gold, with our successful fundraise allowing us to progress our corporate vision, whilst also providing UK and European investors with the opportunity to be a part of Greenland's growing gold sector. We now have the financial capacity to push forward to production at our high-grade Nalunaq gold mine together with targeted exploration across our wider gold acreage in Southern Greenland. Our ambition is to become a full-cycle gold mining business of scale in Greenland, with Nalunaq the first project in what we believe could be many from our existing portfolio of gold assets”. But hang on, haven’t we heard of Nalunaq before?...

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We have… it was previously operated by previously also AIM-listed Angel Mining which went into administration in 2013. However, its financial challenges and operational approach are very different to AEX’s – which has included drilling since 2017 having increased the known extent of the gold mineralised structure at Nalunaq. There are Inferred Resources of 251 koz in 422,770 tonnes at a grade of 18.5 g/t Au, with work also having identified a near-mine exploration target of up to 2 million ounces of gold and the company also considering there further potential. This is also before considering a number of other licences – it has an area of 3,356 km², including some other encouraging results.

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Founder CEO Eldur Ólafsson is only in his thirties but with a BSc Geology degree from the University of Iceland already has Technical Director and CEO experience – including having been responsible for securing the acquisition of geothermal assets in China and the Philippines as well as their successful development thereafter following co-founding Orka Energy. He has 7,906,385 shares in the company. Chairman Graham Stewart is extensively experienced – including from Dana Petroleum and having founded and led Faroe Petroleum. First half year results showed a net $1.9 million of cash used in operating activities and cash of $4.4 million and total current assets of $4.7 million with liabilities $1.7 million. The noted post period-end “successful fundraise” though was for a gross $72.7 million at 45p per share. With that focused on pushing forward to production at Nalunaq, the company is also “looking to secure additional non-equity funding in the form of a modest working capital facility, vendor financing or similar, to accelerate exploration activities across our material portfolio of gold assets in South Greenland”.

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There are clear risks at this point – with significant development work to production and exploration to be delivered. However, these are mitigated by significant existing infrastructure, a stable operating jurisdiction and the historic work. There is also the additional funding noted above, but the company emphasises “whilst we will look to execute on this facility as soon as possible, we are in a very strong position post-fundraise and will take time to ensure that any facility we enter into offers the best terms to our company and shareholders”. The AIM listing presentation shows a less than 24 months pathway to production from Nalunaq – with we considering build-up to 50,000 ounces per annum realistic and potential for costs of around $600 per ounce given the high grades and existing infrastructure. That gives potential for $1,000 per ounce margin – so $50 million per annum. There is the potential for this to be a 10 years+ mine and 1/3 of the net cash flows to be paid to shareholders in dividends. There is clearly much to do from here to get to such a point, but also further upside with the resource potential, gold price potential and the company’s further Greenland exploration potential. This all compares to a current, with the shares at 46p offer, £81.5 million (currently approx. $106 million) market cap. As such, at up to 50p, with a target price of 80p (the value of dividends in a low case scenario plus a modest amount for exploration upside), a buy. To watch Tom interview Eldur Ólafsson and explain why he owns the shares go HERE

This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece this week click HERE

Filed under: AEX Gold, Martin Hughes, Toscafund, Akazoo, Verditek, James Halstead, Van Elle Holdings

2020-10-01 13:12:44

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