Avesoro Resources (LSE:ASO) released an exploration update today including reporting positive drilling results from Ouaré. The company also announced the discovery of two mineralized vein systems around 1.5km east of their Youga Gold Mine processing plant. The share price was up 3% to 188p today on the news, having been beaten down since hitting highs of 295p in April. Yesterday, the company stated in a production update that it maintains its full year guidance of 220-240k oz of gold for 2018. Based on Avesoro’s financial projections the company appears significantly undervalued but as with other gold plays, the spot price of the metal has dented its bottom line.
With Avesoro aiming to upgrade its resource and reserves statement in Q1 2019 and an anticipated recovery in the gold price at some stage, the share price weakness could offer an opportune point of entry.
A look at the chart shows a recent wash down to the 150p and a subsequent bounce and breakout from a wedge pattern. The price is now reaching a sticky zone, namely the bottom of the previous upward channel, an area of previous consolidation, and the stock’s 50 Day Moving Average (DMA). In view of this, there may well be a further test back after touching this area, before an attempt to regain the 200p level and it’s 50 DMA.
Once this area is conquered, a move towards the top of the current shorter-term downward channel at around 230p is likely. Further resistance at this level can be found in the shape of Avesoro’s 200 DMA.
There could still be further downside ahead, particularly in the event the gold price extends its lows, although as I highlighted in SeptemberI believe we have seen key support tested. The chart has a relatively recent ‘Death Cross’ – whereby the 50 DMA crosses below the 200 DMA – which is never a welcome indicator. However, for those looking for an equity play for a gold price recovery, Avesoro could prove to be an attractive option.
Author: Stuart Langelaan
Disclosure: The author holds a position in the company mentioned above