In the article, it was noted that the two West-African mines, Youga and Nzema, produced around 177,000 oz gold in 2011 generating an operating cash-flow of $91 million. The mill grade from the Nzema deposit in Ghana, which produced 90,026 oz, averaged 1.7 g/t gold with cash-costs of $585/oz, whereas the Youga deposit in Burkina Faso averaged a mill grade of 3.1 g/t gold with cash-costs of $644/oz.
It was highlighted that both mines are set to increase their production in 2012 and beyond – also thanks to ongoing aggressive exploration programs that are continueing to increase both resources. For 2012, the company has budgeted $19 million for the exploration of Youga and Nzema, whereas an additional $11 million is directed towards the exploration of its other deposits in Côte d’Ivoire ($8 million), Mali ($2 million) and Liberia ($1 million). Around 80% of this $30 million budget is dedicated for near-mine projects and the remaining 20% for regional exploration. In total, more than 200,000 m of drilling is planned for 2012 alone.
In 2010, some 82,400 oz. were produced generating a cash-flow of $36 million. At a gold price of $1,600/oz., the 2012 cash-flow is forecast to be increased by around 50% from the $91 million of 2011. This remarkable increase comes solely from the Youga and Nzema mines. The completion of the Agbaou mine in Côte d’Ivoire is expected to produce around 100,000 ounces per year generating additional cash-flows of around $160 million per year at a gold price of $1,600.
Based on these prospective fundamentals, we value the company as undervalued considering its current market valuation of only $563 million and its stock having traded four times higher some four years ago.
Technically, the stock fluctuated within the red-green triangle between 1999-2005, whereafter the resistive red leg was broken at approx. $3.50. The subsequent “breakout” went to around $10 in 2007, whereafter the so-called “classical pullback” started bringing the price back into the triangle in 2008-2010. Because this pullback breached the lower green triangle leg numerous times, the price undertook numerous breakouts and pullbacks in 2010-2011 – in order to finally confirm the (formerly resistive) red leg as new support. In late 2011, the apex of the red-green triangle was reached, whereafter the final movement of a triangular price formation typically starts: the so-called “thrust” – either a strong and longer-termed up- or downward trend. As the price started to rise after having hit the apex, we anticipate the thrust to go to the upside. We expect a strong acceleration of price increase once the uppermost red trendline at approx. $2.70 is broken. In general, the goal of a thrust is to rise above the high of the triangle (approx. $6.50) and its breakout (approx. $10) and to transform these former resistances into new support – in order for a new and longer-termed upward-trend to commence thereafter.