In effect, Bezant’s current market value is attributing a valuation of just £2.8m for Mankayan, and nothing to the Eureka copper-gold project in Argentina, a ridiculously low sum considering that Goldfields previously valued the project at $60.5m (£37m), having paid an option fee of almost £6m. Gold Fields also subscribed for $7.5m (£4.5m) of new equity in Bezant at a price of 25.97p a share in January last year. This equity investment equates to 21.7 per cent of the shares in the company, so the mining major remains a substantial investor in Bezant.
In my view, the withdrawal of Gold Fields earlier this year was down to the company reining in capital expenditure rather than the quality of the Mankayan project. Indeed, the project encompasses JORC compliant Probable Ore Reserves of 189m tonnes grading at 0.46 per cent copper and 0.49 grammes/tonne gold, and total recoverable metal reserves of 811,000 tonnes of copper and 2.21m ounces of gold. It seems plainly absurd that Mankayan is being attributed such a low valuation and makes Bezant a sitting duck.
The most likely outcome now is that one of the previous parties who were interested in acquiring/developing the project prior to the granting of the option to Gold Fields will do a deal with Bezant either by entering a joint-venture agreement to fund the development, or to buy it outright. The board of Bezant are pursuing this route as well as initiating dialogue with newly identified potential acquirers and partners for the project. To facilitate this process, Bezant has now received all data from Gold Fields' due diligence fieldwork on the property, including its drilling and assay results, which the company expects will support its own historic technical work. And to make sure its negotiating position is as strong as possible, the board have scaled back explorations activities in the Eureka Project in Argentina.
Clearly, the sale process will take time, but with Bezant’s equity being valued at less than £6m, I find it difficult to envisage a scenario whereby a sale does not reap several times its current share price. I am not the only one thinking this way as Shamim Mansoor, resource analyst at broker N+1 Singer, previously valued Mankayan at £39.7m and feels “the project fundamentals have not changed” and continues to value it at the proposed disposal price less tax on any deal. However, he now prudently assumes a 50 per cent risk of no immediate disposal taking place, and so has a current valuation of Mankayan of £19.8m. That is still more than three times Bezant’s market value.
It’s not as if Eureka is worthless, either, as the copper-gold project encompasses 11 copper and gold tenements across an area of 5,500 hectares. Based on a non-JORC compliant resource estimate and using previous exploration activity carried out by mining groups Minera Penoles, Codelco and Mantos Blancos, the Eureka project has around 52,000 ounces of gold and around 62m tonnes of copper with a grade of 1 per cent. N+1 Singer values Eureka at £2.9m. Add to that a £3m cash pile and an intrinsic valuation of Bezant of over £25m, or around 30p a share, is not unreasonable.
It’s also worth flagging up that Gold Fields will be a willing seller of its stake at the right price, thus making a potential takeover of Bezant a realistic end game. I am sure the top 20 shareholders of Bezant, holding 79 per cent of the equity, feel the same way, a fact other interested parties in acquiring Mankayan will have noted.
Interestingly, Bezant's shares are now as oversold as they have ever been in the past 10 years with the 14-day relative strength index (RSI) approaching single digits and the share price more than 50 per cent below its 200-day moving average. From my lens, a major bottom could now be forming. Add to that a chronic undervaluation of the company’s equity based on a appraisal of its assets, a board in discussions with parties on Manyakan, and I have no hesitation in making a speculative buy recommendation on Bezant's shares on a bid-offer spread of 6.5p to 7p. Even at 20p, the implied valuation of Manyakan in Bezant’s share price would only be £10m, or a quarter of the price Gold Fields was previously happy to pay. That’s my year-end target price, a level I feel is a very realistic take-out price of the company in a bid situation.
Please note that I am working my way through a long list of companies on my watchlist which have reported results or made announcements recently. These include: IQE (IQE), Pure Wafer (PUR), LMS Capital (LMS), Communisis (CMS), Eros (EROS), Inland (INL), Safestyle (SFE), Sutton Harbour (SUH), First Property (FPO), API (API), SeaEnergy (SEA) and Record (REC).
