MIDAS SHARE TIPS UPDATE: Tarnished gold firm Aureus Mining might still have a silver lining
When Aureus Mining chief executive David Reading listed the company on AIM in April 2011, he had an ambitious but credible plan to create the first commercial gold mine in Liberia.
Today, the mine is in production but the firm is in tatters. Listed at 115p, the shares are now 4¼p and the business is effectively up for sale.
The group’s fall from grace is miserable for Reading and his team, but it is also desperate for investors. Midas recommended Aureus shares in October 2013, when they were 30p and suggested that shareholders hold on to their hats, after the stock fell to 24½p in May 2015.
Under pressure: Aureus Mining chief executive David Reading
Since then, the shares have gone from bad to worse. Pummelled by the Ebola virus, Aureus then encountered problems with its equipment. Production, expected to be 60,000 ounces in 2015, was little more than 17,000 ounces.
Such a shortfall imposed severe pressure on Reading’s cash position. He was forced to issue £8.2 million of new equity at 5p a share last November and last month had to delay the company’s first debt repayment to its banks.
A financial adviser, Canadian group RBC Capital Markets, was appointed to undertake ‘a strategic review’ of Aureus, which means the firm is up for grabs. Ironically, the for sale sign has been hoisted just as gold has started to rise in price and Aureus has pretty much ironed out its production problems.
Last week, the group announced production of 5,478 ounces for the whole of January and 5,523 ounces for the first two weeks of February. Later this week, production figures for the whole of February should show further improvements, making it highly likely that Aureus will have produced more gold in the first two months of 2016 than in the whole of last year.
Shining: The gold price has risen from just over $1,050 an ounce on January 1 to more than $1,230 today
The increase in production comes as the gold price has risen from just over $1,050 an ounce on January 1 to more than $1,230 today, buoyed by a growing appreciation of gold’s status as a safe haven in difficult times. All of which makes Aureus a relatively attractive business to potential bidders.
Capitalised on the stock market at a lowly £17million, the group has 1.14million ounces of proven reserves at its New Liberty mine in Liberia, worth more than £1billion.
Production costs, including staff wages, head office expenses and the price of recovering and processing the ore, amount to about £730million and the group has outstanding debt of almost £80million. Simple maths therefore, would suggest Aureus could be worth nearly £200million.
Of course, a company in distress is not in a position to be too demanding and, if a buyer emerges, the offer price will almost certainly be considerably less. But, interested parties are circling and indicative bids are likely to be submitted by the end of March.
Midas verdict: This has been a sorry tale for investors, as Aureus has battled with Ebola, a bear market for gold and early production faults. And there is always a chance that prospective buyers will be too nervous to take the plunge. Even so, it cannot be sensible to sell now at 4¼p. Badly burnt investors should hold on a little longer and hope for the best. Intrepid investors could even snap up a few of the shares now.
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