SpareBank 1 Markets AS acted as Manager and Sole Bookrunner for Akobo Minerals AB (publ) in the private placement in July 2021 and as Euronext Growth Advisor in connection with the admission to trading of the shares of Akobo Minerals AB (publ) on Euronext Growth Oslo in July 2021.
SpareBank 1 Markets is currently enganged as Financial Advisor related to the funding of its planned mining operations.
Conclusion:
Akobo Minerals is so close to gold it can almost taste it. The scoping study supported a conventional plant design that can support an annual production of ~45koz of gold. At this production level, we estimate NOK10/sh in annual FCF, and the main variable is the life of mine. The current resource of 78kt ore supports about a year of production, while our base case of double the resource to 156kt ore supports ~2 years of production. We expect the current resource to be updated in early April, but remain cognizant that we are still in early days when it comes to understanding the resource, and that the deposit and plant can support a multi-year operation at Segele. Our base case yields a NPV10 of NOK15/sh. Our NOK15/sh target price doesn’t take into account any value for the additional drilling targets.
Our analysis
- Cash flow just around the corner. The company is working on turning the exceptionally high grade Segele deposit into cash flow. The first step on this journey was the release of the scoping study last year which supported our thesis that gold extraction at Segele can happen with relatively conventional methods. The study estimated a capex of ~USD8m, and AISC costs below USD250/oz. As we highlighted in our initiation of coverage, the exceptionally high grade ore at Segele can be extracted at exceptionally low costs. We note that the mining industry operates at AISC of around USD1,000/oz. Construction is estimated to take less than a year and start this year, resulting in production from Segele starting in 2023.
- Base case could be put to shame through increased resources. The current inferred resources of Akobo is 78kt of ore at 20.9gpt gold, resulting in 52koz of contained gold. The company is expected to release an updated resource estimate from SRK in late March/early April. Although we don’t have specific expectations to the resource update, we believe that the drilling results speak for themselves, and that the current resource is just a start. In our model we have used 156kt of ore, for ~80koz of contained gold, but we acknowledge that also this only scrapes the surface of what is likely a much larger deposit. Recall that the original ambition was to prove up 500koz of inferred resources at Segele. We believe increased resource represents key share price triggers.
- Getting a foothold on the Ethiopian mining industry. Akobo Minerals is a gold exploration company in the Akobo region of Ethiopia, but we believe the company is developing its position to be a key player in the Ethiopian mining industry. The company is working systematically to build confidence and support in the community, and is working closely with the Ministry of Mining in Ethiopia to lay the foundations for mining to become an important industry for the country. We believe this foothold can develop into the company getting access to even further prospects in the country. Although we believe the company should focus on developing the Segele resource at, securing cash flow and paying dividend to shareholders, the position the company is building will be an interesting platform for the future.
- Valuation. We estimate an NPV10 of NOK15/sh based on our base case of 156kt resources (notably, this is double the 78kt current resource) over ~2 years of production. With the plant design illustrated in the scoping study, we estimate throughput capacity to support an annual FCF of NOK10/sh. The share price sits currently at slightly below NOK8/sh. Once in constructed, the main question about Segele will be the life of mine. Our understanding is that the plant design is flexible enough to handle multi-year operations.
