With the focus of its activities now on gold exploration, the company is planning to change its name to Marvel Gold Limited following a rights issue in mid-August.
Bridge Street Capital Partners has published a research report on Graphex highlighting the company’s inexpensive valuation in the current buoyant gold market, which provides a good base from which to rerate as exploration success is delivered.
The following is an extract from Bridge Street’s report:
- GPX/MVL has moved away from graphite in Tanzania, following in-country challenges and an inability to fund the Chilalo project. This strategy has been assisted with the cooperation of the private equity (PE) group which was hoping to fund the project. Chilalo and associated liabilities are now ringfenced and GPX will seek a buyer of the asset. Proceeds in excess of the liability to PE (ca. US$6.2m) will be retained by GPX/MVL.
- With ample African experience and contacts GPX/MVL has been sifting through investment opportunities. An opportunity has been presented to GPX from one of its larger shareholders, Capital Drilling, which recently negotiated an earn in to two attractive projects in Mali with UK and TSXV-listed Altus Strategies:
- Tabakorole with a 600koz, 1gpt non-JORC resource (dating from 2007), located in southern Mali. The company is wasting no time advancing the project. The first phase of drilling has already been completed, with assays expected in coming weeks. Inclusion of these results and several historic holes not included in the 2007 MRE may significantly improve the grade and size of the deposit.
- Lakanfla, located in western Mali adjacent to the Senegal Mali Shear Zone offering geology similar to that seen at the nearby 4.5moz Yatela deposit and within a short trucking distance of the Sadiola mill.
- GPX will take over the earn-in on broadly equivalent terms (fairly soft, in our view). We estimate the cost to take exploration to the Stage 1 earn-in is under $1.5m. This should present the company with a clear go/nogo decision point for both projects. Tabakorole is likely to move to Stage 2 of the exploration programme.
- GPX can earn up to 80% equity in both projects (or 100% if sole funding construction), subject to the achievement of a series of exploration milestones. Recall as well that the Government of Mali has the right to take a 10% free carry in all mining projects in the country. Altus will also retain a 2.5% net smelter royalty (1.5% of which can be re-purchased by GPX on commercial terms).
- A recent capital raising will see a significant increase in the number of issued shares (413m post placement and rights issue, due to complete in mid-August), leaving the company with a $5m cash position.
- Following the failure of private equity to deliver a funding package for the Chilalo project, it has been reassuring that GPX management has wasted no time in re-inventing itself. Management’s clear aim is to restore value lost in the fruitless search for a fundable graphite project.
- With the assistance of a major shareholder, GPX has acquired two very attractive exploration plays in Mali, and has refreshed the board. Now a company with a gold exploration focus, the appointment of a talented Exploration Director, Chris van Wijk, is a real positive. This position is supported by Andrew Pardey, an ex Centamin CEO, as a non-executive director. Both appointments provide significant strength to the board as it embarks on its new strategy.
- Graphex will change its name to Marvel Gold and has been recapitalised with a share placement and rights issue (the placement is complete; the rights issue closes around 11 August). At the completion of the rights issue there will be 413m shares on issue.
- The new Marvel Gold has wasted no time and has completed an infill diamond and air core drilling programme at Tabakorole in anticipation of an updated and likely higher grade mineral resource estimate (MRE) due in 3Q2020. So, there should be no shortage of short term news flow.
- The geologists will then turn their attention to the Yatela look-alike. Lakanfla is clearly under-explored and presents several walk-up drill targets. The size of the prize could be quite significant. The proximity of Lakanfla to the Sadiola mill recently purchased by a private group, Allied Gold, and now starved for reserves, adds additional optionality. Drilling at Lakanfla is due to commence shortly.
- It is difficult to assess an equity market value for companies such as GPX/MVL and we must await a new MRE at Tabakorole and initial drilling at Lakanfla. Nonetheless we are guided by market values apportioned to other pre-resource gold plays in Mali and Senegal. Along the Senegal Mali Shear Zone (SMSZ) we have been watching closely the work of Oklo Resources (OKU ASX) which we believe will report a +600koz resource of perhaps 1-2gpt gold. OKU’s EV is now around A$160m. In neighbouring Senegal, and on a splay off the SMSZ, early exploration by Chesser Resources (CHZ ASX) is delivering success at the Diamba Sud project. While still some way from a resource, the market is pricing Chesser with an EV of around A$28m.
- GPX/MVL’s EV with the stock now ex-rights entitlement implies an EV of circa. $16-17m. We believe this represents quite an inexpensive valuation in the current buoyant gold market, and provides a good base from which to rerate as exploration success is delivered.