By Dr. Michael Green

There is a lot going on at Caracal Gold which has so far yet to really begin to attract the attention of investors. But perhaps this latest announcement is the one that will finally light the touch paper at this LSE listed gold producer and explorer focused on East Africa, with gold production in Kenya. Most recently we have learned that the company’s gold resources are going to double to 1.3Moz on the back of progress on the Tanzanian gold acquisition.

In December 2021, the market heard about a deal to expand into Tanzania and now the company has agreed a revised Share Purchase Agreement (SPA) to acquire 100% of Tyacks Gold Limited, the holder of licences which make up the Nyakafuru Project in Tanzania. This project is located in the world-class Lake Victoria Gold Fields in northern Tanzania which is just 60km from Barrick Gold’s 18Moz Bulyanhulu Gold Mine.

The changes from the previous SPA include the extension of the completion date, revised commercial terms and the exclusion of the Nyakafura Reefs project and the Simba projects for the time being. Critically, this revised deal allows Caracal to start work on advancing the Nyakafuru project. Truly, Caracal will be exploring and developing its project in the shadow of the giants of the gold world and can be seen to be delivering on its goal of building an emerging East African focussed gold producer.

Acquiring a 100% interest in Nyakafuru represents a new gold mine development opportunity for Caracal. This is in one of Africa’s largest gold producing regions which is the host to multiple +10Moz deposits. The project has already benefitted from extensive exploration and feasibility study work by ASX and LSE-listed Resolute Limited. This work has led to the establishment of established high-grade shallow gold resources of 658,751oz at 2.08g/t contained within four deposits over 280km². Importantly, the deposit is amenable to development as a large scale conventional open pit operation and Carbon-in-Leach processing plant.

This deal will see Caracal’s total gold resources double to 1,330,197 ounces when complete, but that isn’t the full story as we are waiting for an imminent resource update for Kilimapesa. The best point about the revised SPA, is that it introduces interim process steps to allow work on the ground to begin immediately.

At the time, Robbie McCrae, CEO of Caracal, comment that “Signing the revised SPA allows us to immediately begin work on Nyakafuru with drilling to commence in the 4th quarter of 2022.

 “Since we reached the initial agreement with the vendors, we have been working collaboratively together to reach the stage where we can begin to advance the project. We have worked hard to identify and acquire a project that meets our stringent investment criteria, namely offering near term development opportunity and significant value upside whilst complementing our current portfolio.  Nyakafuru meets the brief, with proven high-grade shallow gold resources and historical mining and development studies. Nyakafura will more than double our total resource base, provide exploration potential and allow for accelerated mine development through a conventional open pit operation and conventional processing plant.”

 “With over 1.3moz in gold resources and with the planned updated resource at Kilimapesa, expected to be completed by the end of June, we consider Caracal will be well positioned to create value for our shareholders if you consider the recent B2 Gold acquisition of OKLO Resources, which implies a value of US$100 per ounce on OKLO’s 669,500oz resource. The coming quarters are expected to be transformational for our rapidly growing gold exploration and production strategy in East Africa.”

M&A action seems to be hotting up in the gold mining industry, with Gold Fields announcing the acquisition of Yamana Gold for US$6.7 billion. This isn’t surprising in our view as valuations right across the sector currently seem undemanding, to put it mildly. Also in the news recently has been low-cost international senior gold producer B2Gold plans to acquire ASX-listed OKLO Resources in a deal worth A$90 million. OKLO’s licences cover the highly prospective greenstone belts in Mali, West Africa ,with a land holding over some 505km². OKLO’s flagship Dandoko Project in west Mali has a JORC compliant MRE of 11.3Mt at 1.83g/t for just under 700,000oz. As highlighted in the company’s latest announcement, that acquisition price works out at something like US$100 per ounce.

The big point from Caracal’s latest announcement is that an additional 658k oz has been acquired for under US$5 per ounce, which is a cracking deal. Just compare it with the B2 Gold acquisition of OKLO in Mali – a similar size project of 668k oz and similar classification under JORC – which was done at A$135 per oz (US $100). In addition, it doubles Caracal’s current resource base to over 1.3m oz.

There is no doubt that a 1Moz resource is a big milestone for any company to achieve and Caracal has got there in 6 months. It does look as though Robbie McCrae is trying to get us to do the sum of 1.3 million ounces x US$100 which equals US$130 million (£104 million),  miles away from the current market cap of £12 million. It has to be said that using the OKLO deal valuation GCAT is significantly undervalued. 

A big step forward will be seen with the imminent announcement of the updated MRE on Kilimapesa and this feeds into both the narratives of getting a target of 2Moz at Kilimapesa and 3Moz for the group. We know that clear progress has been made on all fronts at Kilimapesa, with 2,000 ounces per month scheduled to be achieved in December 2022. Momentum is being clearly displayed every month and every quarter without fail. The new heap leach works and now they just have to scale that. At the same time the team seems to have also mastered the management of the tailings.

Between now and December there are likely to be some good months and some bad months gold production wise at Kilimapesa depending on which parts of the operation are being upgraded and improved, the board has made it perfectly clear that it is now not a question of if and how they will achieve 2,000 ounces per month but just a case of implementation.

But on top of this now comes the build of excitement also in Tanzania where the development programme looks fairly straight forward to us. Apparently, the next steps include finalising the exploration plan and infrastructure preparation during Q3 2022. This is ahead of commencing additional drilling to grow and increase confidence in the resource at the start of Q4 and feasibility study work in Q2 2023. So, we are looking at bankable growth. Moving ahead it looks like we are assured a healthy news flow from Tanzania with the appointment of the team and drill contractors in the country.

Align Research initiated coverage on Caracal Gold in February 2022 with a Conviction Buy stance when the shares were trading at 1.15p with a conservative target price of 2.73p. Here we must say that our valuation was based on a peer group comparison with Shanta Gold (LSE:SHG) which is also an East Africa-focused gold producer, developer and explorer. At the time Shanta’s EV/oz figure was calculated to be £35.73 or US$48.25 which we used to place a valuation on Caracal. But with changing times, it looks as though we could afford to be more generous.  At the current price of 0.75p we are more than happy to confirm our stance.

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