Against a backdrop of political and economic uncertainty, this has been a good year for gold bulls. Following the election of Donald Trump, a further jump in the price of the yellow metal hasn't occurred as many predicted, but as febrile markets have shown repeatedly in the past few months, there are still myriad reasons to believe that gold producers will continue to do well at $1,250 (£990) an ounce. But even if interest in the haven asset does fall off a cliff and the gold price drops considerably, we think Aim minnow Mariana Resources (MARL) is worth a look.
- World-class grades
- Expanding resource base
- Takeover target
- Low prospective cash costs
- Partner risk
- Uncertain funding structure
This conviction is based on a relatively simple trading idea. As the balance sheets of Randgold Resources (RRS), Acacia Mining (ACA) and Centamin (CEY) attest, this year's gold run has left many of the world's larger miners with mounting cash piles. But with a paucity of major discoveries in recent years, their options have largely been constrained to increased dividend payments and exploration work of their own. Mariana, which thanks to its dual listing in Toronto is also on the radar of North American miners, is the sort of company its larger peers should be looking at.
Mariana's main asset is its 30 per cent stake in a gold-copper project in eastern Turkey, known as Hot Maden. While the project is still at the pre-development stage, and there will not be a pre-feasibility study until next year, drilling to date has revealed very high ore grades. A month ago, the company recorded its most successful strikes to date, discovering a 69.6m interval of 62.7g of gold per tonne and 2.68 per cent copper. That bonanza is unlikely to be a one-off, as previous holes have revealed grades in excess of 20g across thick intercepts, and an average of 15g. That is simply streaks ahead of Acacia's entire exploration drilling pipeline in Kenya, or Randgold's average mined grades, which sat between 1.4g and 4.8g per tonne last year.
The successful drilling programme has already led Mariana and the project's joint operator, Lidya Madencilik, to establish a known indicated resource of 3.43m ounces of gold equivalent, although this is likely to significantly expand following last month's jackpot result. So high are the grades discovered so far that all-in sustaining costs of mining are likely to be very low.
What is lacking is development financing to get Hot Maden to the mining stage. But the company says the £6m raised last year should see it comfortably into 2017. By that point, Lidya and Mariana will have a much better idea of how to move Hot Maden into production, and which gold majors may be interested in taking a stake.
MARIANA RESOURCES (MARL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 69p | MARKET VALUE: | £84.2m | |
| TOUCH: | 68-70p | 12-MONTH HIGH: | 84p | LOW: 12p |
| FORWARD DIVIDEND YIELD: | NIL | FORWARD PE RATIO: | NA | |
| NET ASSET VALUE: | 10.6p | NET CASH: | £5.8m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 0.0 | -1.1 | -0.4 | nil |
| 2014 | 0.1 | -1.5 | -0.4 | nil |
| 2015 | 0.0 | -2.0 | -0.3 | nil |
| 2016* | 0.0 | -2.2 | -1.8 | nil |
| 2017* | 0.0 | -2.3 | -1.9 | nil |
| % change | - | - | - | - |
Normal market size: 10,000 Market makers: 6 Beta: 0.60 *Northland Capital forecasts | ||||
