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AEX Gold's London IPO: hopping the pond or jumping the shark?

AEX Gold is the latest TSX developer coming over for London's larger pool of money and lower number of competitors in the mining space, but it has brought an early project and is asking for a lot of cash
AEX Gold's London IPO: hopping the pond or jumping the shark?

AEX Gold (Can:AEX) has this week announced its intention to list in London and raise more than its Toronto Stock Exchange (TSX) market capitalisation of C$66.7m (£39m). Some local investors will have deja vu from the pitch: AEX is trying to re-open the Nalunaq gold mine, which Angel Mining had the rights to until 2013, when it went under. AEX is planning a London IPO by the end of the month. 

IC TIP: Hold

It is not the first pre-production company to do this small-fish-to-small-pond shift away from the TSX, which is awash with pre-revenue mining hopefuls, largely in the Aim-adjacent venture board. According to the exchange, there are over 1,100 mining companies overall on the TSX, with the majority (around 900) listed on the venture side. In London, there are just under 400 companies listed under the exchange’s industrial metals and mining and precious metals and mining categories. 

It’s easy to see why a TSX company would look enviously at the performance of London’s gold developers. At the top of the charts is Greatland Gold (GGP), which is up over 500 per cent year-to-date thanks to a spectacularly successful drill programme at the Havieron project in Western Australia, which is being funded by big Australian player Newcrest Mining (Aus:NCM). 

One existing success story of the Atlantic crossing is Pure Gold (PUR), although its liquidity is still limited in London. Another brownfield play, Pure Gold is on track to reopen the Red Lake underground mine in Ontario by the end of the year.  Plenty of miners have gone the other way as well, with established players Centamin (CEY) and Anglo Pacific (APF) also listed in Canada. Gas developer Touchstone Exploration (TXP) has also made the move and done well. 

AEX stands out in its ambition. It will try to raise £45m from its London IPO. It has clearly signposted this move, bringing in the Faroe Petroleum founder Graham Stewart as chairman last year. Canadian shareholders were not impressed, sending its shares down 12 per cent on the news. 

The rationale for potential buyers was laid out by chief executive Eldur Ólafsson in the announcement. “AEX represents an unrivalled opportunity in the London market to build a full cycle gold mining company in an underexplored region,” he said. Mr Ólafsson is right about Greenland being underexplored. 

The island is about twice the size of Ontario but has a tiny population and little infrastructure. 

AEX’s only fellow Greenland developer in London will be Bluejay Mining (JAY), which has spent years working through the Greenland permitting system, filing its exploitation licence application licence for the Dundas mineral sands project this year. AEX already has permission to mine at Nalunaq, a carryover from the former owners. 

So what would Aim buyers be getting with AEX? The mine was last in production between 2011 and 2013, a period in which the gold price fell from the record of over $1,800 an ounce (oz) - perhaps soon to be topped - to below $1,300/oz. More of a problem, according to consultants SRK, was former operator and owner Angel not getting the processing right and not getting anywhere close to its goal of 24,000oz a year. 

The mining itself is very simple: AEX needs to just follow one main vein of gold underground. This high-grade but erratic mineralisation means a resource is hard to come by though. AEX’s estimate (at the inferred level)  is 263,070oz at 18.7 grammes per tonne (g/t). There is no mineral reserve yet, however, which would show the economically viable part of the deposit. 

Consultant SRK said there was “a modest tonnage of material remaining in the mine” in a report published in June, so the company would need to keep expanding the diggings to add to the resources. There is also a neighbouring mountain that could host a continuation of the same vein, SRK said. 

Despite the project’s green light, the company has not completed a feasibility study that would give a final cost and return for investors. Of the £45m AEX aims to raise in the IPO, £29m is set to go to Nalunaq for construction, and equipment buying, with the rest going to exploration, contingency and general costs.