Gold

Orca Gold deal falls on deaf ears: Perseus and Resolute dragged lower on negative market sentiment

Mon 31 Jan 22, 4:13pm (AEST)
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Key Points

  • Both Perseus and Resolute recently posted relatively positive trading updates
  • Sentiment towards gold stocks at large has not been good
  • Brokers expect both gold stocks to Outperform

The market appears to have displayed a dislike to this morning’s news that Perseus Mining (ASX: PRU) has agreed to pay CAD$17.5m for a 15% interest in TSX-listed Orca Gold Inc from Resolute Mining (ASX: RSG) with both stocks down -1.36% and -5.08% in early afternoon trade.

Orca’s key assets include a 70% interest in the Block 14 Gold Project (“Block 14”) in northern Sudan and a 31.5% interest in Montage Gold Corp (“Montage”), which owns the Koné Gold Project in northern Côte d’Ivoire.

Prior to the Resolute share acquisition, Perseus had been in exclusive discussions with Orca, subject to due diligence and other considerations, about a possible change of control transaction whereby Perseus would acquire all the outstanding securities of Orca.

Two highly prospective assets

Perseus management believe Orca potentially provides the gold miner with exposure to two highly prospective assets with significant resource bases.

Management also note that Orca assets are consistent with Perseus’ strategy of building a platform of long life, highly profitable African gold assets, namely in Ghana and Côte d’Ivoire.

Coinciding with today’s announcement, Perseus has also agreed to provide Orca with a US$5.0m short term loan facility, which Orca plans to use for both working capital and further exploration and development activities at Block 14.

Value accretive

Perseus’s Managing Director and CEO Jeff Quartermaine believes the acquisition of the 15% interest in Orca provides Perseus with a pivotal position in Orca from which to further evaluate an exciting potential growth opportunity.

Perseus recently achieved an annualised gold production rate of 500,000 ounces of gold per year from its three existing operating mines.

"While it expects to be able to maintain this level of production based on exploration success around its existing gold mines, we are always seeking to identify value accretive inorganic growth opportunities,” Quartermaine noted.

"We believe that Orca could represent such an opportunity."

Gold one of the worst performing sectors

Despite the market’s cold shoulder to today’s announcement, both gold stocks recently posted fairly positive trading updates.

For example, on 20 January Resolute Mining (RSG) slightly increased gold production over the December 2021 quarter, and a day earlier Perseus confirmed resource upgrade potential at Yaouré gold mine.

However, sentiment towards gold stocks at large has not been good, with the recent dip in prices making gold one of the market’s worst performing sectors.

All Ords Gold

 

Note the All Ord Gold's underperformance, relative to the broader market.

What brokers think

Based on the broker’s covering these two gold stocks, (as reported on by FN Arena) both Perseus and Resolute are currently trading at 26.4% and 60.7% upside to their target price respectively.

Perseus Mining

  • After factoring in second quarter results - including a 7% and 6% beat for production and all-in sustaining costs - plus changes in the company's hedge book, Macquarie retains the $1.90 target price and Outperform rating. (27/01/22).

  • Credit Suisse believes second-half guidance suggests stronger prices may outweigh weaker production. The broker also notes that management has hinted at M&A activity. Target price is steady at $1.80. Outperform rating retained. (27/01/22).

  • Citi notes that at the group level, both production and costs remain on track to meet half-year guidance. But forecasts incorporate a slightly lower gold price forecast. Target at $1.80 and the Neutral rating remain intact. (22/10/21).

Resolute Mining

Macquarie notes guidance for 2022 appears soft, with guidance of 345,000 ounces a -7% miss on forecast and all in sustaining costs of $1,425 per ounce a -25% miss. The Outperform rating is retained and the target price decreases to $0.45 from $0.70. (21/01/22).

To lift the share price, Citi believes Resolute Mining must deliver on a range of guided production metrics to lift margins, especially at the Syama mine. Outperform rating is retained and target price is lowered to $0.45 from $0.70. (21/01/22).

Consensus on both Perseus and Resolute is Strong Buy.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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