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Evolution Securities looks ahead to near term catalysts in natural resource sector

After a very productive 2010 in the metal and mining sector, 2011 is already shaping up to be another interesting year. This morning Charles Kernot, Evolution Securities mining analyst, highlighted several natural resource juniors with promising news on the horizon - African Aura, Coal of Africa, European Goldfields, Cluff Gold and Central Rand Gold.  
Evolution Securities looks ahead to near term catalysts in natural resource sector

This year is already shaping up to be another interesting year particularly with near record commodity prices and widespread disruption in Australia - one of the world’s key mining centres.

Iron ore, coal and gold will continue to be top on the agenda for many investors.

This morning Evolution Securities’ highly regarded mining analyst Charles Kernot highlighted several metals and mining juniors with promising newsflow on the horizon.


African Aura Mining: Catalysts in iron ore’s go-to destination

African Aura Mining (LON:AAAM, TSX-V:AUR) is well placed in West Africa which is fast becoming the go-to destination for iron ore deposits, according to Kernot.

He singled-out the iron ore play in a note to clients, as he looked ahead to some near-term announcements in the junior resource sector.

Kernot expects African Aura to report a maiden resource for its wholly-owned Nkout iron ore project in Cameroon in the first quarter. Later he expects an update on the Putu joint venture – held with a 38.5 percent stake alongside major partner Severstal - to provide another trigger.

“West Africa is fast becoming the go-to destination for iron ore deposits,” Kernot said. 

“African Aura is well placed in this regard with its 38.5% owned Putu deposit in Liberia and the 100% owned Nkout deposit in Cameroon.

“With Severstal as African Aura’s deep-pocketed partners at Putu, the majority of the heavy lifting in terms of funding further exploration and development will be covered by the company’s partners.

“This will allow African Aura to move at its own speed and budget in Cameroon.”

He adds: “We view this event as a near term catalyst, and the likely identification of a 2 billion tonne indicated resource at Putu later on in the year as yet another trigger.”

The analyst rates African Aura as a ‘buy’ with a 210 pence target.

“Our positive stance on iron ore and coking coal relates to our belief in the China story, but more specifically our belief in the ongoing need for the most basic infrastructure materials, such as steel,” Kernot added. 

“Notwithstanding the market concerns regarding a slowdown in growth in China and inflation fears ... we believe that the government has the fire-power to ensure infrastructure continues to be developed.”

African Aura is a diversified mineral resource junior focused on two main areas, iron ore and gold. 

The firm has long held the belief that the market is not appreciating the value held in each of the businesses. It is therefore expected to split the company into two separate entities. The gold business will become a separate company called Aureus Mining and the iron ore operation will be retained by African Aura.

Kernot highlighted that progress on the feasibility study for the New Liberty project, in Liberia, will be the key driver in the gold business.


Coal of Africa: Best coking coal play on UK market

Coal of Africa (LON:CZA, ASX:CZA, JSE:CZA) is the best way to play coking coal in the UK market, according to the Evolution mining analyst.

He believes the firm is set to benefit from the bullish commodity trends, arising from the widespread flooding that has washed out much of Australia’s coal mining industry.

“2011 has certainly got off to an interesting start for the Australians with the terrible flooding issues in Queensland and, more specific to mining, for the coal producers of the Bowen Basin”, Kernot said.

“Australia is by far the largest coking coal exporter and the vast majority of production is from this coal basin. Our belief is that coking coal production is likely to be adversely impacted for several months and that this will squeeze world seaborne supply, pushing up prices.”

He adds: “We see (Coal of Africa) as the best way to play coking coal in the UK market. 

“The company has significant coking (and thermal) coal resources in South Africa and has done an excellent job in securing the required infrastructure which should enable the group to export its product.”

The analyst rates Coal of Africa as a ‘buy’ with a 205 pence per share target.

Kernot expects the group to overcome the ongoing regulatory problems at the Vele Colliery in South Africa and it will make further progress licensing the Makhado project. Consequently he expects the stock to get a re-rating in the coming year.

Kernot adds: “The issues facing the company at Vele are ongoing and we would expect regular updates on this issue. 

“Looking to the Makhado project, we are hopeful that Coal of Africa will soon apply for its New Order Mining Rights for this property, the granting of which would enable the group to progress towards development at this site.” 


Gold Stocks: European Goldfields, Cluff Gold & Central Rand Gold

The analyst highlighted three junior gold stocks with good news expected in the near term.

Kernot thinks that the final approvals for European Goldfields’ (LON:EGU, TSX:EGU) Greek mining permits are imminent. The analyst said he was looking forward to seeing EGU begin moving the Olympias and Skouries into production.

He also singled out Cluff Gold (LON:CLF, TSX:CLF). Kernot reckons Cluff will be generating considerable newsflow in the coming months, mainly from its exploration programmes in Burkina Faso and Sierra Leone. 

“In Burkina Faso, Cluff aims to increase the life of its existing operations by identifying near-pit oxide deposits, and also to increase its resources in this area more generally,” Kernot said.

“In Sierra Leone, Cluff is set to test the seven individual drill targets which are north of the existing resource and have been identified by VTEM geophysics and subsequent analysis.”

The analyst also commented on Central Rand Gold (LON:CRND, JSE:CRND) whose long-awaited long-hole drill rig  - which was set to arrive in Johannesburg at the end of 2010 – will allow it to start commercial underground production.

Finally, Kernot is expecting an update from Central Rand Gold in the near future.


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