(MENAFN- ProactiveInvestors - Australia) Auroch Minerals (ASX: AOU) has attracted the attention of Australian broker Foster Stockbroking, which deems the company worthy of a Speculative Buy rating.
The company's achievements have not gone unnoticed with Foster highlighting the company's recent acquisition of the 3 million ounce Manica Gold Project on attractive terms, its experienced in-country management and strong cash position.
The following is an extract from the report.
Initiation â€" Mozambique gold explorer to keep on the radar
Event:
- We initiate on Auroch Minerals NL (AOU.ASX) with a SPEC BUY recommendation.
Investment Thesis:
- Manica project acquired on attractive terms. Auroch Minerals NL ("AOU"), formerly known as Terranova Minerals NL, recently completed a $3m capital raising at $0.30/sh and recompliance listing process to acquire 100% of the Manica Gold Project, located in Mozambique from South African based Pan African Resources plc (PAN.JSE).
The transaction comprised a A$2m cash payment (deferred for 18mths); 25m shares; and a series of milestone payments linked to resource and production milestones.
The transaction metrics equate to an attractive $3/Resource oz vs. $44/Resource oz for the average African gold explorers.
- Exploration program targeted at growing oxide resource. With $5.2m in cash post AOU is well funded for the CY13 exploration program.
The project already contains a sizebale 2.9M oz Resource @ 1.8 g/t (~90% sulphide), however the focus of the drill campaign is to grow the oxide resource.
Exploration drilling has already commenced along the Northern Shear with 2,135m drilled in December 2012 and first set of assay results expected 1QCY13.
Should the drill results highlight the presence of additional oxide resources early news flow will serve as a catalyst for a valuation re-rating and provide the market confidence in the company's strategy to define a sizeable oxide resource on top of the existing considerable sulphide resource.
- Experienced in-country management team. Importantly, AOU have also retained all key personel from Pan African, who have been working on the project in recent years and collectively have extensive experience in regional geology, metallurgy and corporate deals.
This should enable AOU to quickly implement its exploration program and transition an extensive database of field, drilling and project feasibility work completed on the sulphide resource in place.
- Attractive valuation metric. AOU is trading at a significant discount to its peer group of African exploration companies $6/Resource oz vs $44/Resource oz.
There remains substantial headroom for a re-rating in AOU should it be able to demonstrate the ability to add additional free milling resources from the North Shear.
Furthermore we believe there remains scope to realise the value in the already defined sulphide resource either through development or divestment at a later stage
Recommendation:
- AOU represents an early stage gold explorer, led by an experienced in-country management team, located in the right address for exploration success.
The company has a market capitalisation of $16m with ~$5m in cash (EV of $11m), which has the stock trading on an extremely cheap EV/Resource metric of $6/oz vs. $43/oz average for its Africa Peers.
We believe there remains substantial scope for a re-rating in the share price driven by exploration success as the company continues to build its oxide resource base along the Northern Shear over the next 12 months.
We initiate coverage of AOU with a SPEC BUY recommendation.
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