Kibo Mining* – Speculative Buy at 3.375p with a 10ptarget price
Kibo Mining has an extensive portfolio of gold interests in Tanzania in the Lake Victoria Goldfields, the home to a number of world class gold projects and in the newly emerging goldfields in eastern Tanzania. The understanding of gold occurrences in Tanzania has been turned on its head in recent years following the discoveries made by Canaco Resources in the East of the country. The realisation that gold is now being found in younger rocks echoes what has been found in Western Australia at the Tropicana Deposit (5 million ounce gold resource) which was discovered in 2006. In recent presentations the board has pointed out the apparent parallel between Tanzania and Western Australia; and in both these countries gold has been found in Proterozoic rocks on the edge of older Archaean rocks. The potential is good in Tanzania as the country remains under explored compared with areas like the Yilgarn Block and the surrounding regions in Western Australia. The company is expected to list on the Johannesburg Stock Exchange in May which will put Kibo on an exchange at the heart of Africa where investors probably best understand the opportunities in Tanzania.
The company quietly slid onto AIM last year without raising any funds but with a total JORC resource of in excess of half million ounces gold in the Lake Victoria Goldfields at the Itetemia and Luhala projects. The Itetemia project lies just 5 kilometres away from African Barrick’s Buyanhulu Gold Mine which has a gold resource of around 12 million ounces. Kibo’s focus of attention at Itetemia is the Golden Horseshoe Reef Gold Deposit which has been shown to be economically viable as a stand-alone open pit project at currentgold prices; although the economics become far more compelling when using second hand equipment and further still by trucking the ore to Bulyahulu should such an arrangement be negotiable.On this basis the Net Present Value is $28.7 million (~£18 million) and the Internal Rate of Return leaps to almost 85% using $1,300 an ounce gold and a fairly tough 12% discount factor.
Since its IPO, Kibo has made solid progress. Last September the company raised £250,000 at 2p in September, new directors were appointed, and there was further evaluation of the Itetemia project together with successful drilling on the Luhala project. There was also on-going work at the Haneti and Morogoro projects. Recently, Kibo has begun to make waves with a transformational deal whereby Kibo has more than doubled its licencearea in Tanzania to over 18,000km² and in this move gained strategic positions in both the Lake Victoria Gold Fields and the emerging gold district in eastern Tanzania; as well as bringing in a powerful strategic partner in the shape of the Mzuri group which already has a successful record of mineral exploration in Tanzania. There is little doubt that Mzuri can offer the company the benefit of its business network and infrastructure within the country. Now that the pieces have been assembled to create an impressive enlarged business, the stock begs the attention of investors.
There are plenty of good reasons to buy the shares now. Firstly the board is highly experienced and consists of proven mine finders including Christian Schaffalitzky, Louis Coetzee and Des Burke and, secondly, Tanzania is one of the most politically stable places in Africa; and not only is the country highly prospective for a variety of metals but also there is a real chance of turning an exploration licence into a mining licence as is evidenced by the number of operating mines that have come on stream in the past twenty years. Thirdly, the company has a big ground position in the traditional good greenstone territory near producing mines and infrastructure. And to cap it all, Kibo enjoys a strategic position in a new gold areain eastern Tanzania which looks to be where the future of gold exploration is in the country, and after the experiences of Canaco Resources, Morogoro looks like an awfully good address.
Looking ahead it is possible for projects in this new emerging gold district in eastern Tanzania to be awarded quiet racy valuations even at a pre-JORC resource stage. There has been a scramble for licences in this area on the back of discoveries made by both western companies and artisanal miners. Active in this region is Canaco Resources which trades on an Enterprise Value of £523 million and although it has yet to define a JORC resource, has announced some staggering drill intersections. This does illustrate the level of interest that exploration work in the East of Tanzania is attracting; but at this stage we have approached the matter of valuing Kibo’s interests in this area from a more cautious stand point. Going forward a good intersection could really captivate the imagination of investors.
GE&CR’s valuation of Kibo is largely based on its JORC resources in the Lake Victoria Goldfields using peer group comparisons. The sum of the parts valuation works out at £34.1 million which equates to a price per share of 10p (based on 341.259 million shares). Our stance isspeculative buy with a 10p target price.
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[ott_teaser btn_text=”Download” btn_icon=”icon-right-big” btn_url=”https://kibo.energy/wp-content/uploads/Kibo-Mining-Research-Note-13-April-2011.pdf” btn_target=”_blank”]Research Note on Kibo Mining 13 April 2011[/ott_teaser]