Aureus Mining deserves a premium valuation, says broker

Analysts following Aureus Mining (LON:AUE, TSE:AUE) believe the stock deserves a premium valuation

This comes as Aureus shares are outperforming its rivals on London’s AIM market. Since the turn of the year the stock has gained over 20 per cent, rising from 68p to 85p.

Aureus raised C$40 million last year, priced at the equivalent of 83p a share, after its demerger from African Aura Mining. 

Since then it has made rapid progress. 

The firm is currently developing the New Liberty mine in Liberia, as well as pursuing other exploration projects in the surrounding area – all of which are found within the Bea Mountain licence area.

The amount of drilling doubled at New Liberty as a result of the fund raising and a definitive feasibility study is expected shortly.

“Given the quality of Aureus’ assets, we think the shares should be valued above most of the peers, and certainly the peer average,” said Singer Capital analyst Charlie Long.

“Although recent outperformance has narrowed the gap slightly, an ounce of Aureus’ gold is still only worth US$68 versus US$86 for the peer group.” 

Using a per ounce value in line with its peers gives Aureus a net asset value of 102p, the analyst said. 

This implies around 30 per cent upside to the current share price of 83p. Long does, however, say there might be some ‘softness’ in the share price in anticipation of project financing news in the first half of this year.

At the moment New Liberty has gold resources of around 1.5 million ounces, but Long believes that further exploration will increase the project significantly.

“The Bea Mountain licence has the potential to become a large and important West African gold field as Weaju, Ndablama and other targets should add mineable gold to the global inventory.”  

Furthermore the Singer analyst reckons Aureus may potentially become a takeover target in the future as the project continues to grow.

“Whilst gold prices are still high, we see M&A continuing strongly in 2012 and Aureus Mining is a potential target, especially if it significantly adds to the resource base,” Long added.

Earlier this week Canadian stockbroker Clarus Securities said it is expecting significant news flow from Aureus Mining in the coming year.

Clarus analyst Nana Sangmuah says a definitive feasibility study is expected within a matter of weeks at New Liberty. 

The analyst highlighted that Aureus is targeting a start-up in the second half of next year. And once up and running the mine is expected to produce around 100,000 ounces a year with total cash costs between US$650-700 an ounce.

Initial capex is expected to be between US$120-130 million, the broker added.

“We are encouraged by the fact that much of the project’s infrastructure is in place and that a team of skilled engineers are on staff to facilitate quick construction once environmental permits are received,” Sangmuah added.

Like Singer, Clarus is also looking forward to news from the group’s exploration efforts.

“With four diamond rigs currently within the 547 square kilometres Bea Mountain licence area and 20,000 metres (of drilling) planned for five priority targets, namely New Liberty, Leopard Rock, Ndablama,  Gondoja, and Weaju, we expect significant news flow in 2012. 

“We are (also) encouraged by the results from geochemical surveys completed over New Liberty which reveal two more anomalies larger than New Liberty within a 1 kilometre radius.”

Sangmuah also highlights that Aureus plans to start exploring its gold assets in Cameroon too, with sampling lined up at Ntem and drilling planned at the Batouri project.