Forbes & Manhattan backs African Gold Group

As part of a private placement in March, Forbes & Manhattan Resources Inc., along with several other investors, including company insiders, took a 17% stake in a junior exploration company with a gold project in Mali near the border with Guinea called African Gold Group (TSXV: AGG).

Forbes also appointed Brett Richards, a dealmaker with a 10-year track record in Africa, as the junior’s president and chief operating officer. Richards, along with four former colleagues from Kinross Gold (TSX: K; NYSE: KGC), were the team at Katanga Mining (TSX: KAT) that restarted the Kamoto project, now an underground copper-cobalt mine, in the Democratic Republic of the Congo.

Richards, a mechanical engineer with an MBA from Cornell University’s Johnson School of Business, also built the Inata gold project in Burkina Faso during his tenure as CEO at Avocet Mining (LON: AVM); completed and operated the Octea diamond project in Sierra Leone, now the largest diamond producer in West Africa, as CEO of privately held Oceta Ltd.; and built Renew Resources in Liberia, which controls the largest tropical hardwood concession in Africa. He also served as CEO of Roxgold (TSX: ROXG; US-OTC: ROGFF) through a proxy battle and corporate transition, and recently finished a platinum project in South Africa for a private company called African Thunder Platinum.

Now he says it’s time to refocus on building a gold company in West Africa, and African Gold Group is a good place to start. The junior’s Kobada gold project, 120 km southwest of Bamako, already has a proven and probable reserves of 500,000 oz. gold (12.7 million tonnes at 1.25 grams god per tonne) and more than 2 million oz. gold in the measured, indicated and inferred resource categories (a combined 68.2 million tonnes at roughly 1.05 grams gold). That totals 2.75 million oz. gold in all reserve and resource categories.

A second gold project called Madougou in Burkina Faso also shows potential.

African Gold Group completed a feasibility study on Kobada early last year that envisioned treating only oxide ore in two pits, which would produce 50,000 oz. gold over an eight-year mine life at cash costs of US$557 per oz. and all-in sustaining costs (AISCs) of US$788 per ounce.

But the previous management team were constrained by poor markets and Richards says it’s a much better environment now to build a project on a larger scale.

“African Gold Group put together the 2016 feasibility study on a scope that they felt they could finance, at a time in the market when project financing and the equity capital markets were virtually closed to preproduction junior mining companies,” Richards says in an interview. “There simply wasn’t capital available to AGG in the market to drill out the property extensively in an effort to understand the potential size of the resource.”

The problem is that it’s difficult for institutional investors to get excited about such a small production profile, he says, because small projects deliver a fraction of the economics while assuming all of the same risks as a larger producer in the same jurisdiction.

Richards plans to review the resources and data sets at Kobada, take a closer look at the local workings over the entire land package and see what will be needed to re-scope the project. And if it can be a larger project, what will the company need to do to demonstrate that a larger production profile is economically accessible and makes sense.

“We have to look at Kobada with no capital constraints to optimize the size of the oxide resource and the mineability of the oxide reserve and resource,” he says. “We need to look laterally, versus looking deeper. We want to keep it simple, and understand the overall quantum we are dealing with down through the saprolite to 120 metres to 160 metres, but over a larger area.”

If that hypothesis proves correct, he says, Kobada could evolve as a series of long and fairly shallow pits along strike and in the parallel sheer zones to the main structure. By doing it that way, the company could have a low strip ratio, keep operating and power costs low, and preserve the sulphides at depth for a possible third-phase expansion depending on future gold prices.

“We feel that if the oxides prove to be of similar nature and consistency throughout the land package we will be able to justify and substantiate a much larger production profile with life-of-mine AISCs that are similar to the 2016 feasibility study,” he says. “That is our target — explore the possibility of a 100,000 to 120,000 oz. production profile as our phase-one strategy, followed by resource development drilling and a possible phase-two expansion of either production profile or mineral resource size or both, and preserve the ‘blue sky’ optionality of a phase-three sulphide project.”

Meanwhile at Madougou, the company will continue to assemble historic geochem, geophysics, and drill and sampling data, and prepare for a comprehensive drill program after the 2017 rainy season. Richards says a maiden resource is possible within 12 months.

Madougou came into the company at the same time as the Forbes & Manhattan-led private placement, and African Gold Group has a staged earn-in to acquire 100% of the project. “For now we just need to identify key drill targets for the initial drill program,” he says, adding that Madougou has had over 130,000 metres of historic drilling with “spectacular hits.”

A drill crew at African Gold Group’s Kobada project in Mali. Credit: African Gold Group.

Richards has been working on the concept of consolidating gold assets in West Africa for over a year with various private equity partners who share the same vision. His preference, he says, is to build a gold company, and he has done a “deep dive” on 30 to 40 gold projects in West Africa, including 20 site visits.

“We can do just what Neil Woodyer of Endeavour did back in 2012 — consolidate, add value, acquire high-quality projects, create a sustainable pipeline and deliver sizeable returns to shareholders.”

Richards notes that there are a lot of juniors, explorers and preproduction companies that are trading at 0.25 to 0.35 times net asset value (NAV), whereby the delta between explorers and producers (up through mid-tiers 0.5 to 0.8 times NAV and majors 1.2 to 1.6 times NAV) is substantially higher than it was in the lead up to the last bull market for gold.

The reason, he says, “is that exploration companies haven’t been adding any value for the last three years because there was no cash and hence no activity — no drilling and no resource development.

“After the free fall of gold prices and gold equities from 2012 to 2016, most capital markets were closed for exploration dollars, and in the last year, I am seeing that changing,” he says. “Why? It is changing because the gold price is stabilizing and the view is that given the global political landscape and macroeconomic outlook, we are going to see it go up.”

“AGG is well down the ‘value chain’ — 0.20 times NAV — because of this perception, and we intend to change that perception with action and activity to add shareholder value,” he says. “The impact of putting together a number of companies with strategic synergies, located in complementary jurisdictions and countries, with similar geology and metallurgy, is compelling. It is the old adage: ‘bad paper plus bad paper can equal a great deal, which delivers tremendous shareholder value.’”

Richards says he got involved in Forbes & Manhattan in October 2016 because they shared a similar view of consolidation and wanted to use African Gold Group as the platform to be that consolidator.

The mining executive notes that there are several assets in the market that are cash generative and the group is exploring the possibility of financing them if they can get them for a reasonable valuation.

“Everyone knows which ones they are: those in distress, management getting ready to give up, mid-tiers giving off non-core assets, majors looking for alternatives, and always those companies running out of cash and in a death spiral with a low share price,” he says. “The landscape is pretty well-known in our small society of West African mining people.

“We have a strong team within the group that has done this and done it many times,” he says. “I’m confident that we can do this starting as a small $20-million market cap company. But we are not going to be a $20-million market cap company for long. The timing is right as there is opportunity to be had at reasonable valuations, and we will have strong institutional support.”

African Gold Group is trading at 7¢ per share within a 52-week range of 4¢ to 12¢. The junior has 326 million shares outstanding.