The Value Proposition
Goldstone is a gold exploration company with projects spread across West Africa. These include;
Ghana - Homase Akrokerri
Goldstone currently owns 51% of the Homase license and has the right to earn up to a maximum of 85%, subject to certain exploration spending commitments being met. Goldstone also owns 95.1% of the adjacent Akrokerri license. Together these two licenses are 143km² and contain 405,556ozAu of JORC-resource. Goldstone announced a positive drilling update from Homase in August 2011 and in September a soil sampling update from Akrokerri, opening the door to possible expansion of this resource in the near future.
Ghana - Manso Amenfi
Goldstone currently owns a 10% interest in the Manso Amenfi license area (83km²). It has the right to earn up to 90% of this project, again based on spending commitments. Although at an early stage, the license area has already yielded encouraging soil sampling results, most recently updated in August. Manso Amenfi borders existing mining operations, which increases the likelihood of resource definition and, importantly, the potential of an economic discovery.
Senegal - Sangola
Goldstone owns 100% of the Sangola (471km²) license in south-eastern Senegal. This unexplored area is in a highly prospective gold province, the Kenieba Inlier. To date exploration of the Kenieba Inlier has yielded more than 30Moz of gold in five major deposits in Mali and Senegal. In August Goldstone announced the results of Termite Mound Sampling, which identified three large and consistent gold anomalies.
Gabon
In April 2011 Goldstone was granted two gold exploration licenses in Gabon. These are at Ngoutou (515km²) and Oyem (516km²). Both licenses last for three years, with the option for two three year renewals. Goldstone owns 100% of both licenses.
Recent trading has seen Goldstone’s mid-price settle at about 7p, giving the business a market cap of £15.7m
As of February 28th 2011, Goldstone had cash of US$5.56m, having raised £2.06m (before expenses) in a share placing in June 2010 and £2.16m in a private placing with ASX-listed Unity Mining. Unity Mining is now Goldstone’s largest shareholder with 33.5% of the company.
Management team and strategy
Full details of Goldstone’s Management team can be found here. As is clear, Goldstone’s management has extensive mining experience as well as having worked across Africa. Their plan for the company is both ambitious and practical and their target is to find first class gold deposits in countries, which promote exploration and commercialisation of mining projects. Their definition of a “first class gold deposit” is one which is either in excess of one million ounces or is capable of economic exploitation soon after discovery. Their preferred method for exploitation is to develop projects towards feasibility stage, at which point they will either seek to enter into a Joint Venture or make an outright sale.
Tactically Goldstone is now focussing on target driven exploration. In short this means the identification of highly prospective drilling areas through the application of qualitative and quantitative indicators. Although the company has excellent exploratory licenses it is also still open to investigating other opportunities as they arise.
Taken together, this approach has led Goldstone to focus its efforts on Western Africa and to date their actions have lived up to their published expectations and targets.
The Flagship Ghanaian project – Homase/Akrokerri
Ghana was formerly known as the Gold Coast and gold mining accounts for roughly 45% of the country’s gross export earnings. As such its regulatory system is well disposed towards the sector and the country is a stable democracy. With such a mining tradition in place and, more relevantly, a knowledgeable local workforce plus substantial existing operations, Ghana offers resource explorers a great platform to launch new business from.
So what about Goldstone’s operations here?
Well, Goldstone’s flagship project covers two adjacent licenses; one at Homase and one at Akrokerri. Although the company treats Homase and Akrokerri as one geological unit they are two distinct license areas and have two distinct ownership structures, summarised below;
Homase is operated under a Joint Venture with Cherry Hill. In this agreement Goldstone currently owns 51% of the license, but has the right to earn up to 85%, based on exploration expenditure targets and payment of participation monies. Goldstone expects to increase their stake to 65% as exploration expenditure hits US$1m in the coming months. After this, a successful feasibility study must be completed to enable them to earn the final 20%, taking their holding to 85%. Goldstone provides the breakdown of this arrangement on their website.
Akrokerri is governed by a simpler arrangement. Goldstone owns 95.1% of this license, with the remaining 4.9% owned by Volta Resources Ltd.
Under Ghanaian law the Government retains the right to claim 10% of any mining operation at the time of issuing a mining license.
Both the Homase and Akrokerri licenses are due for renewal in 2012.
Homase/Akrokerri is located in the Ashanti Gold Belt. The gold mineralisation of both is controlled by the same geological structure and they both lie in the same environment as the massive Obuasi gold deposit and mine operated by Anglogold Ashanti.
A mining town has grown around Obuasi and the presence of this will likely simplify Goldstone’s efforts at commercialising the Homase/Akrokerri resource. Not only are the skills and equipment available locally, but there is also the Obuasi oxide processing plant. It is also important to remember that successful commercial gold mining has previously been conducted at Homase in the past.
From 2002 to 2003 Ashanti Goldfields (now Anglo-Gold Ashanti) extracted approximately 40,000ozAu along a strike length of 800m of the four kilometre mineralised zone (this photo was taken during that operation). They reported a recoverable grade of between 2.6 and 2.7g/t. This was at a time when the gold price was trading at between US$320 and US$380 an ounce. Ashanti’s reported operating cost per ounce was between US$220 and US$280. Ashanti stopped mining during 2003. Sometime afterwards the license was secured by Cherry Hill and in 2009 Goldstone entered into the current Joint Venture to continue exploration of this site.
Goldstone then conducted exploratory work at Homase, before adding the Akrokerri license in October 2010.etime afterwards, the license was secured by Cherry Hill and in 2009 Goldstone entered into the current Joint Venture to continue exploration of this site.
In April 2010 Goldstone announced a maiden JORC-resource of 282,608ozAu at Homase and followed this in June 2011 with the addition of Akrokerri’s 123,000ozAu of JORC-resource. The table details the combined JORC-resource of 405,556oz Au. Akrokerri is the direct southern extension of the Homase pit and both together contain 8.87m tonnes of ore with an average grade of 1.4g/t. The resource extends from the surface to a depth currently ranging from 130m to 200m.
Then, in August 2011, Goldstone announced the latest drilling results from Homase/Akrokerri. These confirmed the extensions of the high grade gold shoot under the northern part of the Homase pit. These results point to a possible future expansion of confirmed JORC-compliant gold. Goldstone has now completed the first third of a 4,500m exploratory drill programme.
Meanwhile, management appear extremely positive regarding the prospects of mineralisation here; advising shareholders in their Annual Report to February 28th 2011, that high grade shoots may continue to “plunge steeply beyond their current known extent”. This was followed in September 2011 with an announcement that soil sampling indicated widespread gold mineralisation and that drill targets were identified. Future surveying is planned here to establish the southern extent of Homase.
Growth in Ghana at Manso Amenfi
Moving onto Manso Amenfi, we covered much of this in our April update. Even so it is worth recapping some of the detail now.
At Manso Amenfi, Goldstone currently owns an interest of 10% in the license area. Milestones are in place to enable Goldstone to grow this stake to 90% of the project. The steps are as follows;
- Goldstone is required to spend US$500,000 to earn another 15% of the project
- An additional spend of US$800,000 will earn the company the next 30%.
- Beyond this Goldstone may earn a further 15% by spending an additional US$1m or by completing a successful pre-feasibility study over any defined resource.
- The remaining 20% can be attained on the securing of a positive feasibility study.
Although this project is still relatively early in its development, it is clear why Goldstone has pursued it as an opportunity. There are critical clues as to what could be found in this area. Manso Amenfi appears to border the intersection of two main gold bearing structures. These structures currently host several major mining operations. This is very positive, as it means that if gold is found in Goldstone’s license area, then it enhances the potential for viable economic extraction.
In addition to this, Manso Amenfi is an area of intense artisanal gold mining activity. Such small-scale operations can be a good indicator of the general prospectivity of an area. So far Goldstone has tested 2,070 soil samples from its license area and found that 378 of these contained anomalous gold concentrations ranging from 20 parts per billion to 2.4g/t. Perhaps unsurprisingly, many of these gold-bearing samples were taken from areas where artisanal mining occurs.
With soil sampling now complete, Goldstone has reaffirmed its intent to continue with further surveying and multi-element geochemistry investigation. This will enable the ranking of current soil samples, so as to allow for drill targets to be identified through further sampling and trenching.
The Senegal Project – Sangola
Over in Senegal, Goldstone is also very active. We don’t often get to write about “Termite Mound Sampling”. Nor, for that matter, do many others!
In case you are wondering, Termite Mound Sampling is exactly what its name suggests. Using termites as alternative prospectors might appear a little unconventional, but it makes a great deal of sense when you think about it. Termite mounds are extremely widespread in this part of Africa and can be up to 9m tall. Rather than having to select and dig samples, Goldstone elected to let the termites do the hard work. This approach enabled the company to collect 8,150 samples across its 471km² Sangola license.
However don’t be too distracted by this creative sampling technique. It is the results, which really matter. The three large gold anomalies, which were found, are located along the local Main Transcurrent Shear Zone (“MTZ”). In geology a shear zone is a zone of closely spaced faults, which are approximately parallel. For illustrative purposes imagine two fault lines rubbing against each other over millions of years as the Earth’s continental plates slowly drift. It is common that where faults meet so too can there be significant geological anomalies (such as base metal deposits).
In this particular instance the MTZ is responsible for the formation of significant gold deposits north-east of Goldstone’s license. Of particular note is the Massawa deposit, which looks set to become Senegal’s second operational gold mine and contains 3.4Moz of gold.
The proximity and direct connection to Massawa provide significant geological clues as to what might be found in Sangola. Follow up work is now due for completion after the rainy season ends at the end of 2011 or early 2012. This should enable Goldstone to identify sites for trenching or limited drilling.
As a gold mining destination, Senegal has not been on the scene for very long. The first mine opened as recently as March 2009 at the Sabodala deposit, which hosts 3Moz of gold. This partly explains why Goldestone’s Sangola license area is largely unexplored, even though clear geological indicators are present.
As one of the early players in Senegalese gold exploration, Goldstone has been able to cement their position. This is reflected in the commercial terms of the Sangola project. Goldstone currently owns 100% of the project and the license runs until September 2013. It is then renewable for two further three year periods. However if gold is found, a new operating company will be formed to exploit any resource. The Senegalese Government will have a free carried interest of 10% of this operating company, with the option to take another 25%, based on certain contributions.
This means Goldstone is guaranteed a minimum 65% of the operating company. It will also be exempt from certain taxes during the exploration phase as well holding a four year customs-free status during development and a seven year tax-free status during mining. Importantly the Senegalese Government has agreed the unfettered repatriation of foreign loans and remittance of dividends.
Grassroots projects in Gabon
From 2005 to 2009 the European Union sponsored a SYSMIN survey, providing 14 million Euros to outline the mineral prospectivity of Gabon. Goldstone has put the results of these surveys to good use and after an application process of 13 months was granted two exploration licenses in April 2011, at Oyem and Ngoutou.
Goldstone arrived early at the table in the application process and was therefore able to “cherry pick” what they consider to be the most prospective licence areas; displaying strongest evidence of the presence of distinct gold in soil anomalies.
These two projects, Ngoutou and Oyem, are separated by about 200km, but share some interesting similarities. Both contain soil anomalies in excess of 15km in length and both share analogous geological traits.
Additionally both are targeted by artisanal gold miners which is always considered to be a good indicator. Goldstone owns 100% of each project.
Company funding and the relationship with Unity Mining
As of February 28th 2011 Goldstone had cash at bank of US$5.56m, having spent US$1.55m in the financial year, up from US$610,000 in 2010. This leaves the company in a stable position and allows it to focus its efforts on further exploring its license areas.
Goldstone’s strong cash position is due to its June 2010 share placing (raising £2.16m, before expenses) and the earlier private placing with Unity Mining (previously known as Bendigo Mining).
The relationship with Unity is an interesting one. Unity is a mid-range Australian mining company, currently valued at about AUD$66.3m. By taking and then expanding their stakein Goldstone to 33.5%, Unity has issued a clear message that it sees this strategic relationship as an opportunity to expand their operations in West Africa. Goldstone in return gets an experienced and credible partner, who could help with project development and, one could speculate, mining at some point in the future.
However in September 2011 Unity announced that their CEO and CFO were both stepping down. We await further developments in due course.
Share price
The Goldstone chart makes interesting viewing. For a company which has supplied the market with a continuous stream of good news, the price movement has been decidedly choppy of late. It is certainly true that the last few months have been pretty tough for resources stocks as a whole, but this is a well-funded business, with a consistent story of growth.
As of writing, it is currently trading towards the bottom of its twelve month range, which arguably provides a good entry point. If the good news keeps flowing, then we believe the current price could provide a robust base for future growth.
Our conclusion
All in all Goldstone Resources is a hive of activity. The company has followed an innovative strategy in the last few years and its management team has demonstrated an ability and willingness to achieve set objectives.
To do this the company utilises a highly professional but innovate approach to exploration, using qualitative indicators such as artisanal mining alongside creative data analysis, through Termite Mound Sampling, and leveraging large scale studies paid for by others, such as the European Union SYSMIN survey in Gabon. Goldstone has intelligently accelerated its exploration initiatives and we see no reason why this won’t continue.
The company’s current JORC compliant gold resource of 405,556ozAu in Ghana is targeted for growth to over 1m ounces. Management see this as realistically achievable; as do they of the potential for its economic and commercially development. They also hold four other highly prospective licenses covering just over 1,500km² of Ghana, Senegal and Gabon.
Even though the share price is at the bottom of this year’s range, we believe the combination of continuing good news, the distribution of risk across three prolific regions and the company’s strong cash position all combine to make this an extremely enticing opportunity. The markets, it seems, may be offering investors the opportunity to buy a blue chip gold explorer at rock bottom prices.
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Disclosure: The Authors hold shares in Goldstone Resources
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