Avesoro Resources (LSE:ASO) was the only UK-listed gold miner to see an increase in its share price over the month to 21 February. Could the firm’s strong fundamentals finally be outweighing concerns around liquidity and consolidation?
As the table below shows, Avesoro, London’s seventh largest gold producer, rose 13.3pc to 235p over the period, beating peers like Randgold Resources (LSE:RRS), which fell 14.7pc, and Anglo Asian (LSE:AAZ), which fell 4.7pc.
In January, we wrote that Avesoro – London’s seventh biggest gold producer- had received no love from the stock market despite adding an additional 110,000oz of production with its acquisition of two mines – Youga and Balogo.
Hannam and Partners now expects Avesoro to generate EBITDA of £146.4m in 2018, a significant chunk of its current market cap.’ Despite this, the company – which has now pulled back slightly to 227p – had not made any notable move upwards, suggesting something else was bothering investors. One factor that was likely stalling interest in the stock was that it had 8.1bn shares in issue, prompting concerns of potential near-term consolidation, which often has an adverse effect on market cap.
As it turned out, the business did complete a consolidation later that month, bringing its share base down by 10 times to 81.5m shares, giving a current Market of £193m. However, now that this has completed, it is unlikely that investors will have to worry about this happening again anytime soon.
It is also likely that Avesoro being held back by concerns around the intentions of its parent company – Avesoro Holdings – which owns nearly 73pc of its shares. But when we asked Nick Smith, head of investor relations at Avesoro, about this, he argued that the firm’s strong relationship with its parent, in fact, offers valuable synergies.
As a result, we suggested that these worries around liquidity could be unconditional, making Avesoro a decent value play. Since that piece came out, there have been several significant catalysts for a rise in Avesoro’s share price that have led to its outperformance.
Namely, the business reported an expected 15-25pc increase on 2017 gold production for 2018 in its latest guidance and announced further high-grade drilling intercepts from its Burkina Faso focused exploration campaign. It also announced the purchase of a wide variety of heavy mining equipment for $10.3m through a $35m loan facility with BMMC.
The important thing to note here is that there is now evidence that the market has begun to react significantly to the news flow Avesoro is putting out, suggesting they are now less concerned around liquidity and consolidation. With Avesoro looking set to continue delivering strong news flow – it intends to double its production size over the next two and half years – shares could truly offer a lot of upside if this trend continues.
Author: Daniel Flynn
Disclosure: The author of this piece does not hold shares in the company mentioned.