BULL POINTS
■ Sizeable flagship project
■ Imminent upgrade of reserves likely
■ Producing mine finances exploration
■ Outlook for gold price
BEAR POINTS
■ West African political risk
■ Loss making
Cluff Gold has a portfolio of mining projects in West Africa, but the short-term impetus to its share price is likely to be news from its flagship project, Baomahun in Sierra Leone, where drilling results, expected soon, may confirm hopes that it could be a multi-million-ounce gold deposit.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | High |
| Timescale | Long |
| What do these mean? Find out in our | |
The name 'Cluff' has been almost synonymous with exploring for natural resources since the 1970s. After selling North Sea-focused Cluff Oil to BP, Algy Cluff started Cluff Resources in the 1980s to explore for gold in West Africa. A number of successes culminated in the company's sale to Ashanti Goldfields for £80m in 1995. Cluff Mining was launched in 1996, became Ridge Mining and was acquired by Aquarius Platinum for $90m (£55m) in 2009. Exploration work at the Baomahun project in Sierra Leone suggests that Cluff Gold may become Mr Cluff's latest vehicle to enrich shareholders.
Around 2m ounces of gold have already been found at Baomahun, which could be mined at the rate of about 157,000 ounces per year, starting in late 2013. Combined with existing production from Burkina Faso, that would lift Cluff's production substantially above 200,000 ounces a year and elevate the company to mid-tier status as a gold producer. A more detailed study is expected to be completed by September and management hopes to have the financing for the project in place by the year end.
However, what's more exciting is the exploration potential of Baomahun, where a survey has identified seven tempting targets north of the planned open pit. These targets extend along a 12-kilometre length of mineralisation and correlate closely with soil surveys and existing small-scale mines. Only a short section of this length was drilled to derive the current resource, but Cluff plans to spend up to $22m this year to establish the extent of Baomahun's gold reserves and the first results are imminent.
| CLUFF GOLD (CLF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 102p | MARKET VALUE: | £128m | |
| TOUCH: | 101-102p | 12-MONTH HIGH: | 130p | LOW: 75p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 59 | |
| NET ASSET VALUE: | 44p | NET CASH: | $20.9m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | nil | -0.9 | -1.1 | nil |
| 2009 | 40 | -35.5 | -30.3 | nil |
| 2010 | 116 | -1.0 | -4.9 | nil |
| 2011* | 102 | 9.9 | 0.4 | nil |
| 2012* | 87 | 12.1 | 2.8 | nil |
| % change | -15 | +22 | +600 | - |
Normal market size: 3,000 Matched bargain trading Beta: 1.9 *Evolution Securities estimates £1=$1.63 | ||||
Away from Baomahun, the company aims to produce 70,000 ounces of gold this year from Kalsaka in Burkina Faso, the cash flow from which should fund all of the company's exploration. Kalsaka's current mine life is only a couple of years, although Cluff hopes to find enough additional resources to extend that by three to four years.
Production at Cluff's third mine, Angovia in Côte d’Ivoire, is currently suspended because political unrest is delaying critical mining supplies. This highlights the hazards of operating in West Africa although the company is taking advantage of the shutdown to drill further to expand the gold resource.
Lower gold concentrations from both operating mines in the second half of 2010 dragged the company into loss for the year, which was disappointing, although attention is focused on drilling rather than financial results.
