Yesterday's statement from West African-focused gold miner Cluff had some very positive exploration results. Questor says buy.
By Garry White 7:00AM BST 18 May 2011
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Cluff Gold
89.125p -5¾
Questor says BUY
It confirmed a new gold find in Sierra Leone, but Cluff was still loss-making in the last financial year. There had been hopes that 2010 would be the company’s first profitable year after it moved into the black in the first half – but Cluff is now expected be profitable in the current year.
In the 12 months to December, revenues soared to $115m (£71m) from $39.7m and the pre-tax loss was slashed to $976,000 from $34.4m.
The cash cost per ounce of producing gold was $883, a 2pc year-on-year increase, with the average price of gold coming in at $1,228. Total production in 2010 was 94,295 ounces.
There was also an important development at its Baomahun flagship exploration project in Sierra Leone. The company said it was “very encouraged” by data from the first drill hole. Exploration continues and there is the potential for significant upside. The resource at Baomahun was upgraded six months ago, with the measured and indicated resources there increasing by 27pc to 1.42m ounces. Cluff also acquired four new exploration licences in eastern Burkina Faso as part of its strategy to build a strong pipeline for future growth.
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Importantly, the group is now very cash-generative and it had a closing net cash position of $20.9m compared with net debt of $3.6m at the end of 2009. This means that its exploration projects are fully funded.
The shares are trading on a December 2011 earnings multiple of 10.3 times, falling to 9.7 next year. The company does not currently pay a dividend.
The shares were first recommended at 62.3p on February 14 last year and they are up 43pc compared with a FTSE 100 up 14pc over the same period. The last time Questor gave an update the shares were at 104½p – and they are now below this level. However, the shares remain a buy for exploration success as 75pc of Baomahun remains unexplored. But investors must take into account the inherent risks of any exploration programme.
