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VSA Capital Market Movers - Caracal Gold

Published: 10:43 07 Dec 2021 GMT

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Caracal Gold#: Early Delivery on Growth Strategy

Acquisition of Development Assets

Caracal Gold (Caracal Gold PLC (LSE:GCAT)) has signed two agreements to acquire assets in Tanzania, amongst the Northern Greenstone belts, which are host to numerous multi- million-ounce deposits, as part of the growth strategy to secure 50kozpa of production and over 2mnoz in compliant resources. The acquisition of development and advanced exploration assets sees the company rapidly realising its ambitious stated aims. The Nyakafuru project was advanced by Resolute Mining (RSGR LN) between 1992 to 2017 while the nearby Simba project was owned by Liontown Resources (LTR AU); now a A$2.8bn lithium company. The transformational acquisition increases GCAT’s compliant resources by 146% to 1.65mnoz initially, and by a further 0.4mnoz (205% in total) if licences under application are granted; notwithstanding the substantial exploration upside.

 

Nyakafuru and Simba

The Nyakafuru gold project consists of multiple gold deposits with mineralisation hosted in shear zones and vein swarms. Mineralisation is near surface and over 200,000m of drilling has delivered impressive intercepts including 19m at 16.69g/t Au, 20m at 10.29g/t Au and 46m at 3.3g/t Au; all at depths less than 200m. RSG carried out significant drilling, met studies for conventional leaching, and CIL processing as part of historic feasibility studies. GCAT will be building on these to produce a robust development plan suitable for a growth company. The acquisition of the Simba project, just 25km away and again with wide intercepts of shallow gold mineralisation, provides a likely satellite to enhance development plans.

 

Agreement Terms

GCAT will acquire 100% of the Nyakafuru project for an upfront consideration of US$3m of which just US$0.5m is in cash. GCAT will pay up to US$5.25m in contingent payments of which just US$1m is cash based on development milestones. This implies an acquisition cost of US$7.12/oz assuming all milestones are achieved. GCAT will acquire 75% of Simba, which is earlier stage, for US$0.5m in shares and US$0.28m in cash with contingent payments of up to US$1m in shares; this implies US$3.38/oz. Attractively valued in relation to our peer group (US$92/oz) and GCAT’s current Kenyan valuation of US$36/oz.

 

Target Price and Recommendation

GCAT has quickly moved to demonstrate that its ambitious targets for growth are both realistic and achievable. The acquisition on attractive terms is supported by a proposed £5m convertible facility and with the limited upfront cash payments, the majority can be deployed to derisking and advancing these assets towards production. 

We reiterate our Buy recommendation and increase our target price to 4.2p/sh. on a diluted basis, implying 227% upside.

 

Oliver O'Donnell, CFA, Natural Resources  | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com

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