18.03.2024, Author: André Will-Laudien

Share news: DESERT GOLD - The train is leaving the station — Surrounded by potential buyers

  • Gold
  • Afrika
  • Exploration
  • commodities

The gold price is in a good mood again. After forming a top between USD 1,600 and USD 2,100 for almost four years, it managed to break above the old high in March. The new all-time high now stands at USD 2,195. It is no wonder that this new level needs to be solidified first. Last week, the precious metal consolidated slightly to USD 2,150. In the medium term, this is not a disaster, as investors have now rediscovered the asset class. Initially, the producers of gold and silver have already risen by 10 to 15% from their lows. A special story is unfolding in Mali, West Africa. Here, Desert Gold is progressing step by step and attracting a lot of attention. The price of the favourable share has already doubled. So, the train has left the station, and the potential for a takeover is a multiple of the current valuation.

With enough money in the till for the next round of exploration

Desert Gold Ventures was able to raise the equivalent of CAD 1.12 million in subscription receipts for the CAD 700,000 financing announced in February. The demand surprised the initiators, as it was not easy to obtain new funds for exploration until the current gold price outbreak. However, due to the promising results of the initial drilling phase, interest is now very high so that the current offer could be extended accordingly. This extends Desert Gold's current operating radius well into 2024, with the last 12 core holes totalling 905 m in the Barani East, Gourbassi West and Gourbassi West North zones to depths of 12.5 to 160 m.

The SMSZ project is part of the Birmian Greenstone Belt in West Africa. Source: Desert Gold

The Barani East and Gourbassi West Zones contain Measured and Indicated oxide and Transitional Mineral Resources of 131,000 ounces of gold at a grade of 1.41 g/t gold (Au) and Inferred Mineral Resources of 55,000 ounces of gold at a grade of 1.22 g/t Au. A resource estimate is now being prepared for the 1.6 km long Gourbassi West North Zone. The oxide and transitional resources in all three zones will be part of the Preliminary Economic Assessment (PEA) currently underway.

Located in the centre of the Mali gold basin

The prospective land area of the SMSZ project on the border of Mali and Senegal covers 440 sq km and is located in the Senegal-Mali shear zone. The production of gold is one of the largest and most consistent sources of income for the West African country of Mali. On the border with neighbouring Senegal is the well-known Loulo-Gounkoto complex, where one of the world's largest gold deposits is located. In the past 12 months, gold production there has contributed more than USD 1 billion to the Malian economy. In addition to the still-young Desert Gold, the producing mines of Barrick and Allied Gold, Endeavour Mining, and B2Gold are already on site. Not far north of the Desert properties are the historically successful and now reactivated Yatela and Sadiola districts. They have been majority-owned by Allied Gold since 2021 and have historically produced 6.8 million ounces of gold. IAM Gold sold 80% of the Sadiola mine to the new producer, Allied Gold. Over the next few years, it will be developed into one of Mali's largest reactivated mines.

6.8 million ounces produced

The potential is huge.

According to Allied management, output is expected to increase in the coming years, reaching approximately 400,000 ounces of gold by 2028, up from the current level of about 200,000 ounces. Due to significant investments, Allied is currently still producing at around USD 1,300 AISC per ounce, but here too costs are now falling from quarter to quarter.

Consolidation is more than likely

At this year's Mining Indaba commodity conference in Cape Town, Peter Marrone, CEO of the newly formed Allied Gold Group, delivered an extensive presentation on the consolidation needs of African mines. In his opinion, the continent's 2,000 or so commodity miners will be absorbed into larger units in the coming years. While global gold mine production has risen by only 26% since 2010, it has increased by almost 60% in Africa and more than doubled in at least 10 African countries.

Barrick Gold owns 80% of the Loulo-Gounkoto complex. Almost 700,000 ounces of gold are mined here every year. Source: Barrick Gold, Mali Q1 Media Day Presentation

Barrick Gold CEO Mark Bristow comments on the current situation: "We are also exploring new growth opportunities in the Loulo region, including conducting high-resolution airborne magnetic geophysical surveys to delineate the next generation of high-grade targets."

In Mali, gold is located very close to the surface, which puts the average cost per ounce in the range of USD 850 on a sustainable calculation, and also keeps drilling costs low. With total costs ranging from USD 130 to 150 per metre, they are very low worldwide. In the gold-rich Quebec region of Canada, the costs are significantly higher with a factor of 2.5 at around USD 400. Desert CEO Jared Scharf aims to significantly expand the current resource estimate of indicated mineral resources of 310,300 ounces and inferred mineral resources of 769,200 ounces of gold over the next few years. To this end, a drilling program totalling 30,000 m will be carried out in 2024.

On a very promising path

CEO Jared Scharf believes that the Company is now on a solid path that will lead to an increase in value in the near future. He is convinced that both mining and exploration can be carried out simultaneously starting in 2025. Therefore, the construction of the heap leach facility is expected to be completed by 2025. Following the completion of the PEA part of the drilling program, the drill rig has now started drilling the first of four exploration holes in the Mogoyafara South and Frikidi zones. The Mogoyafara South target contains open pit inferred mineral resources of 412,800 ounces of gold at a grade of 1.05 g/t Au, making it the largest known gold deposit on the SMSZ project to date.** This deposit is open along strike and to depth and lies within a 2 km by 3 km area of structural rotation, which is considered favourable for the gold deposition in most structurally related gold camps.

The Western Gold Belt of Mali covers an area of approximately 37,000 sq km. Over 15 million ounces of gold have already been mined here. Source: Desert Gold Ventures

The Frikidi gold target returned 61 rock samples containing more than 5 g/t Au, some of which returned mineralisation of 100 g/t Au or more. Frikidi is an area of numerous artisanal mining operations within a 5 km by 2.5 km transverse magnetic anomaly. If even hand-picking for gold promises success, an organised open pit operation should provide solid recoveries. Assuming that Desert Gold can repeat the drilling successes of the past, the 30,000 m drill program should be able to discover 250,000 to 400,000 new gold ounces. The new resource estimate would then have to be priced into the market in the current year and should be published in the second half of the year. A catalyst for Desert Gold's success could also be the exploration activities of the large mining companies in the region, which are constantly looking for mine expansions and can finance further drilling from their cash flow. The Company's main objective is still to develop a Tier 1 gold project in the medium term. This puts the Company firmly in the favour of its expansion-hungry neighbours.

Interim conclusion: Moving into the next round

Investing in Desert Gold shares is exciting again. The positive news from the private placement at CAD 0.07 suggests that the price will likely rise above this level in the coming weeks. This is because the holders of warrants with a basis of CAD 0.08 will quickly switch to the share in order to profit from the anticipated appreciation. CEO Jared Scharf anticipates further attention from large investors on this small Canadian asset. Despite its significantly low valuation, investors gain access to all the opportunities of the next consolidation round. Given the size disparities among resident mining companies, integrating Desert Gold into the portfolio is highly likely at a certain point in resource determination. While neighbouring corporations such as Barrick Gold (EUR 25.4 billion), B2Gold (EUR 3.17 billion) and Allied Gold (EUR 578 million) already boast decent market valuations, the Canadians, with their new share count, barely reach around EUR 10 million.

The gold market is on the move again. While the ounce price has climbed to a new all-time high, Barrick, Endeavour, and B2Gold are still lagging. Desert Gold demonstrates where the journey can take us. Source: Refinitiv Eikon from 16/03/2024

In chart terms, Desert Gold is ahead of its large peer group in Mali. After initial movements, the major producers are now trading slightly higher but still below the level of 12 months ago. The Desert Gold share is only just below its 1-year high of CAD 0.08. After the current placement, there should be no further dilution for some time, as the first cash flow is expected from 2025. Around 45% of all shares are held by management and insiders, Californian Merk Investments holds around 7%, and mining legend Ross Beaty is also on board with around 3%. The volume in the share has recently risen significantly with higher prices. It will be really exciting if the high of 2022 at around CAD 0.15 can be overcome as the gold price rises.

This update is based on our initial report 11/21.

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Source: Desert Gold

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André Will-Laudien

Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.

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