The accelerated underground development plan by Vatukoula Gold Mines (LON:VGM) will create some short term pain for the miner but it will eventually afford it some much needed “production flexibility”.
This is the conclusion of broker WH Ireland, which restated its 'buy' stance and 224 pence a share price target in the wake of today’s update from the group.
The process is designed to turn the mine into a 100,000-ounce-a-year producer and is set to continue right the way through to May.
“With its schedule of increasing development drives available for future production, the company is increasing its production flexibility and therefore further increasing its operational resilience,” WH Ireland analyst Tom Elder said in a note to clients.
“We reiterate this is highly desirable in the single-mine operation such as Vatukoula’s.
“Vatukoula remains on target to achieve its stated stage one production target of 100,000oz per annum,” he said.
“The company is also continuing with its exploration effort, with the ultimate goal of extending its reserve life significantly. We have few doubts that both these aims are highly achievable.”
The downside initially is that ore grades from the company’s wholly owned Vatoula Mine in Fiji have been lower in the first quarter of the company's financial year than they were in the previous three months.
Collins Stewart’s John Mcgloin said: “While production numbers are down the news that development metres are up 100 per cent should be seen as highly positive and a flag that the company is progressing well to achieving its 100,00 ounce production target.
“Adequate development is the crux for all underground operations and particularly so for VGM as the variability of the orebody means that it needs to have flexibility in selecting high and medium grade stopes to optimise production.”
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 (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.”
Lionel Therond, oil and gas analyst at Fox-Davies, featured Bowleven (LON:BLVN) in the broker’s morning note to clients.
This morning Bowleven revealed that plans to drill the Sapele-1 discovery well beyond its original target depth after it found more hydrocarbons in Cameroon’s Douala basin.
The mid-cap oil firm had already found light oil as well as gas condensate in a number of intervals in the well. This morning it told investors that it encountered further hydrocarbon-bearing pay in both the Tertiary and Cretaceous objectives. Bowleven highlighted that all five target objectives are indicated to be hydrocarbon-bearing and net pay has been confirmed in three of them.
Sapele-1 is currently at a depth of 4,539 metres and Bowleven plan to keep drilling deeper
The well has now achieved one of its principal objectives, to prove the concept of the Cretaceous play offshore Douala Basin, consequently it has extended the Cretaceous play fairway significantly.
“A very good result that extends the prospectivity of the acreage down to the Cretaceous, de-risking a number of similar prospects,” Therond said.
“The company is chasing oil deeper down by extending the well beyond current TD and has identified a number of objectives to be tested.
“The company needs to complete the evaluation of the penetrated Cretaceous section before providing resources estimates as well as a view on the commerciality of the discovery.”
He adds: “The well being designed to intersect multiple independent exploration targets from a single location, a number of the targets have been intersected at sub-optimal locations and we can expect better reservoir characteristics away from the well bore.”