Page 25 - pd276-Oct19-mag-web_Neat

The post-GFC pull back from emerging

markets in favour of tested jurisdictions such

as Australia and Canada has led to heavy

discounts being applied to projects and

companies in Africa.

owever, the discrepancy between “On our strategy of investing in jun-
Hvaluations presents an opportunity iors, we are looking at future orebodies
for those willing to make brave decisions. where we can develop mines,” the Reso-
“The valuation gap is getting so big lute managing director said. “We are not
now that it will draw the money back into equity investors; we are not a fund man-
some of the better opportunities in Afri- ager. CEOs are always in the position
ca; that is the opportunity at the moment, to believe that the equity markets are ir-
given the overvaluation of the big end of rational because if they had half a brain
town,” PCF Capital Group managing di- they would be valuing your stocks at a
rector Liam Twigger said. higher level. It is unusual to admit that
“Generally speaking, the self-aware- the market might be rational, with minor
ness required by the chief executive to price variation.
recognise he is overvalued and he should “At the moment we are operating
be placing or raising money or making gold mines, we are mining gold to cre-
acquisitions is not consistent with being ate value. Gold is hard to find, it is two
CEO, but those who are smart enough parts per billion of the earths’ crust, so
are taking the opportunity. Juniors have backing good exploration teams on good
never been cheaper and the bigger end ground and funding them and support-
has never been more expensive, so the ing them so they can find us an orebody Liam Twigger
smart money is where the juniors should that we can develop is what it is about, it
be looking to hoover up stories that we’re is not about the equity value and we are Despite a flat junior market, the ASX
pitching [at Africa Down Under] and it is not there to market them, the strategy is remains a go-to exchange for mining
also about getting the big guys to recog- slightly different.”
nise that they are trading at massive pre- Roddy Barclay of Africa Practice be-
miums and they should use it.” lieves similar dynamics have played out
Noted African gold dealmaker Mark in the oil and gas sector in recent years,
Connelly encouraged more Australian with M&A now back on the cards.
companies with the capacity to transact He said companies who have suc-
to do so now. ceeded during the recent round of cost-
“I think the discounts are in there, but cutting and innovation-fuelled efficiency
that will change because of the quality of drives were now in stronger positions
the assets and the opportunity to make financially and beginning to flex their
good money on companies working the muscles.
African continent,” Connelly said. “For companies at the lower end it has
“There are companies that have pub- been very challenging,” Barclay said.
licly stated they do not want to go off- “With the oil price where it is, the super
shore and want to stay local. That is a majors have been more active in the
reality, but I think for me, there is plenty frontiers and those companies that have
of opportunity and upside in Africa. Is maintained the cash flow and cut costs
there a willingness from Australians to are certainly looking more active on the
do more transactions? I think they should M&A front.
and I think there is a lot of value in their “One of the big differences [compared
currency and their paper. If they were to the mining sector] is probably on the
deal-savvy they would be out there try- government side of things. The high pro-
ing to do more. If I was CEO I would be file oil price slump across the board has
out there with paper trying to do more. really kind of held back the regulators
We are now seeing good quality assets when there were some revisions to some
out there and it is fundamentally the role fiscal terms being considered in a num-
of the company, the board, the CEO [to ber of key markets. In mining, across the
seek those out].” more diversified mineral group we have
John Welborn has not only demon- seen some of those reforms pushed
strated an appetite to go down the M&A through and again that creates a more
path, but to also enter partnerships with challenging environment for the com-
companies on the rung below Resolute merciality of some of the products being
Mining Ltd. looked at.”

aUSTRaLIa’S PaYDIRT OCTOBeR 2019 Page 25