| Lots To Like, Usual Small Miner Worries

2nd Sep '09 by doverbeach

13 comments 4054 reads

Allied Gold are a gold miner in production in Papua New Guinea. Market cap c A$200. Listed in Australia and on Aim. AGLD's final results were out yesterday: http://www.investegate.co.uk/Article.aspx?id=200909010914142953Y

A very quick glance shows that they haven't met their productions targets and have not got a great price for the gold. But there is more to like:

- the main cause of the production shortfall in the last quarter was 5 days down time due to commissioning new equipment (a scat crusher) and maintenence

- the poor price is because they have been heavily over- delivering into hedge contracts, so this should start to improve soon

- debt free

- working on reducing operations costs and de-bottlenecking to increase production from 84k to 100k.

But the big opportunities come in three areas:

- adding on sulphide production. At the moment they are only producing from oxides, ie from 25% of their gold resource. A pre-fesibility study is expected to be completed this year with the aim of starting production from Pigiput sulphides in 2111, aiming for prodcution of 80-100k oz a year

- promising grades from Pigipo drilling: http://www.investegate.co.uk/Article.aspx?id=200907100700124090V

- farm out of Tabar-Tatau to Barrick. Barrick can earn up to 70% of this project - it will be paying for all the exploration costs.

Forgot to mention a broker note here http://www.minesite.com/fileadmin/content/pdfs/Brokers_Notes_July_09/AGLD%2031-07-2009.pdf

<edit 11 Sept> very decent grades announced from Pigiput and Pigbo drilling: http://www.investegate.co.uk/Article.aspx?id=200909110911449080Y

<edit 16 Sept> new investor Presentation here: http://www.rns-pdf.londonstockexchange.com/rns/1505Z_-2009-9-16.pdf

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Pigiput Prospect - Best down-hole intercepts in diamond core holes were:

* SDH045 119m @ 2.15g/t Au from 158m in SU
* SDH047 35m @ 1.65g/t Au from 211m in SU
* SDH048 49m @ 2.88g/t Au from 129m in SU
* SDH049 6m @ 5.11g/t Au from 136m in SU
* SDH050 17m @ 1.54g/t Au from 130m in SU
* SDH052 31m @ 6.03g/t Au from 151m in OX, TR, SU
* SDH053 39m @ 2.29g/t Au from 125m in SU
* SDH055 35m @ 1.63g/t Au from 111m in SU
* SDH056 16m @ 13.6g/t Au from 142m in SU
* SDH057 27m @ 1.70g/t Au from 149m in SU
* SDH058 35m @ 3.75g/t Au from 150m in SU
* SDH059 12m @ 6.55g/t Au from 168m in SU
* SDH060 47m @ 4.46g/t Au from 119m in SU

As part of the Offering M&G Investments Plc, a 16.22% shareholder in Allied Gold
by virtue of their holding of 93,839,177 Ordinary Shares, have subscribed for
an additional 107,400,000 new Ordinary Shares at 19.4p per share.

110,872,187 Ordinary Shares representing 10.71% of Allied's Enlarged Share
Capital, Capital Research Global Investors hold 74,040,274 Ordinary Shares
representing 7.15% of Allied's Enlarged Share Capital, Fidelity (Institutional
Group) hold 51,214,755 Ordinary Shares representing 4.95% of Allied's Enlarged
Share Capital and JP Morgan Asset Management UK Ltd hold 34,265,465 Ordinary
Shares representing 3.31% of Allied's Enlarged Share Capital

djpreston

2nd Sep '09

Hi Db

Holding AGLD has been somewhat frustrating for me. Granted we took advantage fo the "sales" offer ont he shares and increased our position but seeing it languishing at the current prices, compared to Randgold soaring ever higher has produced a few grrrs from me.

As you say, whats not to like? Debt retired early, hedge beign run down rapidly, everwhere they drill seems to turn up more oz's and then there is the upside from Sulphides but most importantly from the Barrick funded work on Tabar Tatau. Barrick hold a decent position in the stock from their buy iin and obviously is the main outer for AGLD. If they turn up the good with their explo then theyll simply buy out the rest of AGLD.

Ah well, guess I will just have to hold on for longer.

marben100

3rd Sep '09

Thought it might be interesting to do a comparison between AGLD and Norseman (NGL, which I hold). Here are the results:

	AGLD	NGL
2008/9 Production (koz)	72.6	80.8
2008/9 Revenue (A$m)	77.5	96.7
Cost of sales/oz (A$)	914.6	764.9
2008/9 PAT (A$m)	(8.2)	20.3
Reserves (koz)	1,110.0	400.0
Resources (koz)	4,700.0	3,700.0
2009/10 Production f/c (koz)	80.0	80.0
Net cash/(debt) (A$m)*	16.7	25.7
Market cap. (£m)	117.0	68.7

*I have excluded hedging/derivative instruments from AGLD's debt, which is a risk that NGL does not have.

Norseman also benefits (IMV) from the lower political risk of having its production based in Australia.

Does AGLD's potential justify the extra market cap, vs NGL's demonstrated success? ISTM that Norseman's apparent paucity of reserves is scaring the market - despite new finds recently reported and likely reserve/resource upgrades to follow.

Cheers,

Mark

tiswas

In reply to marben100 (post #2)

Very interesting Marben, but didnt AGLD report A$ 651 oz as their 09 cost of sale or are you not looking at the cash cost? Also didnt they have A$ 21.6 m cash at the b/s date?

Have you produced a similar comparison for other gold producers? If so would you mind sharing it? I want to beef up my gold exposure in the coming months and I freely admit I am newish to this sector.

Rgds

Rob

In reply to tiswas (post #3)

I am dividing production by cost of sales from the P&L (for both companies). IMV this is more realistic than so called "cash costs" (which I have found bear little relationship to profitability). Though I haven't included it in the comparison, I have also looked at a "true cost"/oz figure too for Norseman, which includes D&A. For NGL it is runing at around A$880 currently. Given that CAPEX is required to replace D&A (& generally exceeds it for NGL - haven't checked for AGLD), I consider D&A to be a true cost, which should be considered when assesssing the profitability of a miner. Sorry but I haven't repeated the analysis for any other gold miners (so far).

I got a good education about "true costs" last year from NGL when I was rather disappointed at how poor the P&L looked, compared with my expectations based on quoted "cash cost" figures - similary if you just used the cash cost figure you have quoted for AGLD, wouldn't you expect it to be profitable rather than loss making? Of course, AGLD's cost of sales may be inflated because it is in a ramp up phase but that's a judgement you have to make.

On a "bird in the hand" basis, though, Norseman looks better value to me. Of course, it is possible that I have missed or misunderstood something about AGLD's figures, as I don't know the company very well - but a couple of other factors to consider are that AGLD seems to have quite a few potentially dilutive share options hanging around and I don't know whether the company will need to raise further cash to complete it's projects.

doverbeach

11th Sep '09

Late RNS with good grades from drilling: http://www.investegate.co.uk/Article.aspx?id=200909110911449080Y I have bold-ed the best:

Pigiput:

Gold assays received from 8 diamond core holes drilled at the Pigiput Deposit...

SDH029    31.5m     @     5.63g/t Au from      93.0m

SDH030    6.3m      @     4.57g/t Au from     126.7m

SDH032    43.0m     @     1.26 g/t Au from     38.0m

SDH033    60.0m      @     3.79g/t Au from     118.0m

SDH034    12.4m      @     4.15g/t Au from     151.0m

SDH035    43.0m     @     1.42g/t Au from     125.0m

SDH036    60.0m      @     1.62g/t Au from     119.0m

SDH039    25.0m      @     2.59g/t Au from     188.0m

Pigibo:

Gold assays received from 3 cored holes continued to define and confirm mineralisation at the Pigibo deposit located approximately 300metres west of Pigiput.

SDH025    13.9m     @     2.32g/t Au from     11.0m

SDH028    8.9m       @     1.85g/t Au from     34.2m

SDH031    55.0m     @     3.30g/t Au from     78.0m

Beat me to it db - caught up in a meeting.

Very solid results from the drill and very positrive for the total resources. Still looks v cheap relative to the other producers.

16th Sep '09

Investor Presentation:

http://www.rns-pdf.londonstockexchange.com/rns/1505Z_-2009-9-16.pdf

Possibly one for the header?

The Prospector

30th Nov '09

RNS out Friday: http://www.stockopedia.com/news/announcement/AGLD/091127agld002537.htm

Significant gold intercepts from diamond core drilling continue to support the Pigiput 100,000oz p.a. Sulphide Development Study
Down dip extension of adjacent Pigibo Deposit identified

yes that is another nice set of drilling results:

18th Dec '09

In reply to doverbeach (post #9)

I admit that I do not have a clue how to value this following the offering and aquisition but I am impressed with the shareholder base, particularly the commitment from M&G.

http://www.advfn.com/p.php?pid=nmona&cb=1261138186&article=40813741&symbol=L^AGLD

Following the completion of the offering M&G Investments Plc hold 201,239,177 
Ordinary Shares representing 19.44% of Allied's Enlarged Share Capital.

In addition, as a result of the Offering, Baker Steel Capital Managers hold

10th Sep '10

RNS explains recent price rise: http://www.investegate.co.uk/Article.aspx?id=201009101032054871S

Extensive drilling programme over the past 18 months has resulted in a substantial increase of 1.31 million ounces of gold ore, equivalent to a 155% increase in Proven and Probable Reserves

· Total Proven and Probable Reserves by material types are now:

§ Oxide - 26.3M/t at 1.03g/t

§ Transitional - 4.5M/t at 1.11g/t

§ Sulphide - 15.1M/t at 2.31g/t

· Increased Reserves to underpin current Oxide plant expansion and delivery of Sulphide Pre-Feasibility Study expected to be completed by the end of this month

29th Dec '10

RNS this afternoon http://www.advfn.com/p.php?pid=nmona&article=45808275 saying they expect to commission Gold Ridge project in March, ie on the schedule given at the AGM last month http://www.alliedgold.com.au/site_cms/assets/File/AGM_10_November_2010_Presentation%283%29.pdf

The A$150 million refurbishment and redevelopment of Allied Gold's fully-funded 100%-owned 120,000 ozpa Gold Ridge gold project in the Solomon Islands is nearing completion with the project on time and on budget.

Allied Gold anticipates wet and dry commissioning of the 2.5 Mtpa Gold Ridge process plant in February with first gold production expected in the March quarter.

All major project components are either on site or being installed with remaining refurbishment activities such as finishing the reline of the SAG mill and instrumentation cabling due in mid-January after a festive season break. Important items such as process reagents are due to be delivered this week.

Comment by Executive Chairman Mark Caruso, "Redevelopment activities are almost complete and with 600 people now on site we look forward to commissioning Gold Ridge during the March quarter. Combined with gold production from Simberi (PNG) this will lift Allied's gold output towards 200,000 ozpa in 2011."

db

5th Apr '11

After the suspension in Oz we have the announcement after hours of an A$93m placing.

Extract:

Allied Gold Limited ("Allied Gold" or the "Company") has successfully completed the book build for a placement of new ordinary shares ("Shares") to institutional and sophisticated investors, raising gross proceeds of approximately A$93.8 million (£60.3 million) (the "Placement").

The Shares under the Placement will be issued at a price of A$0.60 (or 38.5p) per share ("Issue Price"), which represents a discount of:

· 5.5% to Allied Gold's last closing share price on the ASX of A$0.635; and

· 4.8% to Allied Gold's 5 day volume weighted average share price on the ASX of A$0.630.

Under the Placement Allied Gold will issue approximately 156.3 million Shares with admission of the Shares on AIM expected to be Monday 11 April 2011 and admission of shares on ASX expected to be on Tuesday 12 April 2011.

USE OF FUNDS

Allied Gold intends to use the net proceeds from the Placement to:

§ Retire approximately A$50.0 million (£32.1 million) of existing debt facilities, thus strengthening Allied Gold's balance sheet;

§ At Simberi, replace diesel fuel electricity generation with heavy fuel oil at a cost of approximately A$15.0 million (£9.6 million), to reduce Simberi's electricity generation costs by approximately 25 per cent;

§ Provide the balance of funding required to expand the Simberi gold mine ("Simberi") in Papua New Guinea (PNG) from 2.4Mtpa to 3.5Mtpa, to lift gold production from 70,000 ozpa to 100,000 ozpa; and

§ Provide working capital for exploration and other corporate purposes.

Also Moving to the Main LSE Market:

INTENTION TO MOVE TO THE MAIN MARKET OF THE LONDON STOCK EXCHANGE

Allied Gold intends to apply for admission of its ordinary share capital to the Official List of the UK Listing Authority (the "Official List") and for a Premium Listing on the London Stock Exchange's ("LSE") Main Market for listed securities.

The Company has been examining the merits of moving to the Main Market for some time and believes it can assist the Company with its profile, the liquidity of its shares, and an increased potential investor base.

Such a move will be subject to shareholder approval. Shareholders will be kept fully informed of this process as it progresses and as the timetable is confirmed.

RBC Capital Markets has been appointed as sponsor in relation to the move to the Main Market of the LSE.

lots to like, usual small miner worries

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Doverbeach

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