There are opportunities, admittedly rare, where the market gets its risk-reward calculation wrong.
Though irritating for the companies in question, they present an opportunity for the eagle-eyed investor.
Fully funded, work on its New Liberty mine and plant is 75% complete.
Output is slated to be 120,000 ounces of the precious metal per annum for the first six years, which should generate US$206mln of free cash after debt repayment.
It is not uncommon to see stock in companies such as Aureus mark time as they prepare to go into production.
Few investors get excited as a new piece of plant or equipment is installed on time and to budget, while other potential backers will exercise caution until operation is successfully up and running.
Aureus Mining’s shares are currently changing hands for less than half of their net asset value (NAV).
Normally when the project is built, the stock would trade at 0.8 or 0.9 times NAV and up to 1.2 times NAV when the mine is producing.
But there’s always a lag before these valuations are achieved, which provides the opportunity to acquire an investment at a discount to its real worth.
For Aureus, which has a decent following among the analyst fraternity, the valuation range for the stock, which is currently changing hands for 25p, is 27p to 66p.
The consensus is around the 50p mark, which would provide significant upside were this target to be achieved.
For those looking for exposure to gold in this region, Aureus’s New Liberty operation is the only West African mine currently under construction.
Many of the deposits in the area, although boasting larger resources, certainly don’t have the high grade of the New Liberty deposit.
And none has had to stress test its model in the way the group had in preparing a bankable feasibility study.
“We are the only project in West Africa of the developers with a bankable feasibility study. This makes us unique.
“And having been through the six months to one year of bank due diligence, we have been thoroughly stress tested.
The sleeper in this investment proposition is the Ndablama deposit. Just 40 kilometres north-east of New Liberty, Ndablama is part of a five kilometre mineralised, pressure shadow zone which is located within a 13km shear corridor, highlighted by continuous gold in soil anomalies.
The recent drill results provided a continuation of what had already been found, namely a shallow dipping, potentially low strip ratio opportunity grading between two grams to three grams per tonne of gold.
The resource currently stands at 451,000 ounces, but the recent exploratory work points to a significant upgrade once the assay results have been collated.
Aureus hopes to give an updated estimate in October.
“We would look to something a lot more substantive this time. Certainly the drilling says we will at least double that [the resource],” Reading said.
Crucially, the gravity recovery of gold is very high at over 70%, which means the group could, if it goes ahead with mining, produce a concentrate that would then be shipped to New Liberty.
This would cut both the processing and capital costs of Ndablama.