How Wall Street Buys Gold at a Discount

FN Media Group Presents Oilprice.com Market Commentary

LONDON, Nov. 22, 2019 /PRNewswire/ -- Wall Street loves nothing better than a solid discount gold story. Especially at a time when gold prices are soaring. But what they like even better is a discount gold story that's gone beyond discovery and is now ready to start construction.   Mentioned in today's commentary includes:  IAMGOLD (NYSE: IAG), Newmont Mining Corporation (NYSE: NEM), Yamana Gold (NYSE: AUY), Pan American Silver (NASDAQ: PAAS), Kinross Gold Corporation (NYSE: KGC).

That's where things get significantly more interesting, and where the discount on gold is still the same as it was in the discovery phase: HUGE. The only thing that moves the market on the gold-mining scene these days is fast-paced development. The discovery phase is too risky. By the production phase, the leverage has dwindled, because a junior at this phase has likely already been acquired by a bigger player. The discount goes with it.

In between is the development phase. And when it's as fast-paced as this massive gold project Wall Street's about to latch onto in Mali, then the needle can move—fast.

African Gold Group (AGG.V; AGGFF) is sitting on a potential 2.2-million-ounce resource at its Kobada Gold Project in Mali's prolific gold-producing Birimian Greenstone Belt. Better still, it's low-cost, near-surface and easy-to-process gold. And better still yet: It's evaluating the potential for an increase in estimated annual production to 100,000 ounces per year.

AGG is in the middle of a drilling frenzy, and construction could start in just six months.

Junior gold stocks have a reputation for hundredfold stock gains—but while this needle will sometimes be moved on dramatic discoveries, it moves most in the fast-paced news of the development phase, when the potential for production looks like a sure thing. Then, it can move dramatically again on news of a big acquisition.

In the case of AGG's Kobada Project, what may ping Wall Street's radar loudest is who's behind it: This is another project of legendary Canadian mining financier Stan Bharti, who is also AGG's new CEO, supported by heavy hitter Danny Callow, the No. 2 mining head for giant Glencore's Africa division.

Everything Bharti touches turns—in many cases literally—into gold, and when you're playing on the junior field, half of the de-risk depends on who's running the show. He's already done it once in this same venue. In 2008, Bharti's Forbes & Manhattan acquired Avion in Mali for $20 million, turned it around and sold it to Endeavour for $500 million in 2012. Now that Mali mine is Endeavour's main asset.