Mozambique’s golden play – investment analyst Dean Cunningham liked the company so much he became its CEO

One of my favourite mining trips was a visit to the Sheba Mine near Barberton. Not just because the Mrs came along (rare). It also

Dean Cunningham:  From JSE analyst to Mozambique's Mr Gold
Dean Cunningham: from top rated JSE analyst to Mozambique’s Mr Gold

played to my love of historybecause it Site of the legendary Bray’s Golden Quarry, the richest gold strike ever discovered – and the source of the gold being panned in nearby rivers. The old timers used their picks and shovels to carve out a huge cave which gave up its treasure long ago. But given the type of deposits in the Barberton Hills, the prospect of another Golden Quarry being discovered is real. The Sheba Mine is part of Pan African Resources, one of my favourite gold shares for years. It hasn’t disappointed, keeping costs under control and plugging away profitably. Under its previous CEO Jan Nelson, Pan African acquired the rights to the Manica deposit in Mozambique. After a strategic re-assessment, the company (now part of Cyril Ramaphosa’s Shanduka empire) decided to float Manica off as a seperately listed entity. Enter top rated mining analyst Dean Cunningham, who was the mining specialist at TWP, the consultancy given the task of coming up with ideas. Cunningham liked the prospect so much that he changed horses and now runs the ASX-listed Auroch Resources, the Mozambique-focused gold explorer and miner. Pan African held onto 42% of the equity so its shareholders remain interested in developments. This week I got an update from Cunningham on CNBC Africa Power Lunch. Here’s the interview. Promising prospect. – AH 

ALEC HOGG: Auroch Minerals has entered into a joint venture with Baobab Resources. That’s for the expansion of the Manica Gold Project (in Mozambique). Dean Cunningham, Managing Director of Auroch Minerals joins us today. That’s an interesting story, Dean. We last spoke years ago when you were still a rated analyst on the Johannesburg Stock Exchange with Edey Rogers. Then, you worked for Ferguson Brothers, which became Investec Securities, after which you went into consulting.

DEAN CUNNINGHAM: Correct.

ALEC HOGG: And along comes a company called Pan African Resources and now you’re out of consulting and running their old gold mine (in Mozambique called Manica).

DEAN CUNNINGHAM: Well, the consultancy company was about private equity-type  investments. Using the skills that sat inside the consultancy company, taking equity and creating pipeline for the group. Pan African came to us. They had the Manica Project – three million ounces of gold – and it was at the bottom of their capital requirement. They asked us to give them a couple of options. We looked at a combination of different things, which culminated in an ASX listing. Raising some cash, putting it out independently, giving it its own legs and own life. That’s what we did. So in 2012 and the beginning of this year we took the project to market, listed it, raised some cash and that’s where we are now.

ALEC HOGG: Pan African is highly rated. I don’t know if you noticed but today they had a trading statement: share price up 9%. If they offload a project, I guess a question mark in the investors’ minds must be: If it was that good, why would they no longer be there?

DEAN CUNNINGHAM: Well, they’ve retained a shareholding in the listing – 42% – so they’re not going anywhere. Their focus is South Africa. At the end of last year they did a significant acquisition of the Evander assets from Harmony. They’ve got their Barberton assets and they are in Phoenix on their platinum side. Their focus I think is really South Africa at this stage. It’s all about cash flow and not exploration, and so I think that’s where they like to keep their focus.

ALEC HOGG: It’s a different type of mine, Manica is in Mozambique – open cast – very different to what they’re doing in Barberton so I guess you had to look at it differently as well.

DEAN CUNNINGHAM: Absolutely. We took out a brand new piece of paper and re-looked it. They looked at potentially bringing to account a small portion of it. We took all the other information, put it all together and looked at scheduling a number of potential open pits, some adits with some underground operations, put it all together, did a scoping study and it came out very positive. It was on the basis of that, we’ve decided to go into the near-term production and to take something that’s in a significant gold camp…

ALEC HOGG: You say Gold camp. Johannesburg – 100-and something years ago – was a gold camp. What do you mean by that description?

DEAN CUNNINGHAM: Well I mean – we sit on what is a classical Greenstone called the Odzi-Mutare Greenstone Belt. It runs 160kms from Zimbabwe into Mozambique. It’s got a history of well-documented, 2.5 million ounces of gold production. Lack of capital flowing into both Mozambique and into Zimbabwe over the last two or three decades resulted in a lot of these gold operations being defunct. There’s just no capital around, they can’t take them through the various phases. It’s got a history of gold production. We know we’ve got three million ounces of gold there. There’s no doubt it’s there. It needs a skill-set. It needs capital. Auroch is possibly two or three years ahead of everybody else in that area. We’ve got the platform, being an ASX listing. We’ve certainly got the skill-sets and a high quality African-based team taking projects through their various phases and access to finance. It’s now about taking all of these things and putting them into the project, taking them through the various phases and putting them into production.

ALEC HOGG: So again, for the uninitiated: where there’s an outcrop – what does that mean?

DEAN CUNNINGHAM: Well, it means where the reef has come to surface. It’s along sheer zones and those sheer zones are disturbances on surface and you get the material coming through with gold in them. We have to find and identify those. They’re generally open-castable which is, as you know, cheap to produce. It’s to take it through the various phases, build the plant and take it forward.

ALEC HOGG: If you looked at South African gold strikes and said it was two grams a ton, people would shake their heads and say ‘no way’. But this, as you’ve just explained, is an outcrop so you can bring in the bulldozers (and open cast mine). It can be very profitable.

DEAN CUNNINGHAM: You can certainly do that. The long-term average grade of the South African industry has been above five grams a ton which is significantly different to what we have. And in SA  it’s all two kilometres down. I hear the latest long-term production will come from at least five kilometres. So it’s little different.

ALEC HOGG: A little? How rich is Mozambique in gold?

DEAN CUNNINGHAM: Well, it occurs predominantly in the Odzi-Mutare as it comes through from Zimbabwe into Mozambique. I would say that you’ve got about 200/300 kilometres squared of potential gold camp in Mozambique.

ALEC HOGG: And richer potentially than that two grams a ton?

DEAN CUNNINGHAM: Well, it depends where you are on the deposit. That’s an average grade and those are the types of grades that you would schedule into a plant, Our Guy Fawkes Project sector is in the mountains and that would be potentially an underground operation with adits going in the side of the mountain. We get ten grams over three/four metres, so you’ve got to look at it holistically. You can’t look at it and say it’s a ten gram a tonner. You’ve got to have average grade going in. It’s all about economics, putting the right amount of capital up front, treating it, getting it as low-cost as you can and then having a margin. It’s all about margin.

ALEC HOGG: You clearly focused in Mozambique in the Manica Project. Are there any other players in the country, in gold?

DEAN CUNNINGHAM: In Mozambique there are a number of smaller players, all looking to do different things. Republic Gold is a property adjacent to us. They’re also listed on the ASX – very small. They don’t just have it in the Manica area. There are other areas where they’ve got gold.

ALEC HOGG: Potentially: how big could Mozambique be in this precious metal?

DEAN CUNNINGHAM: I don’t think it’s going to be a South African type of an environment. I think we would like, in the longer term, to be 100,000 ounces – around that level. Maybe you could double it. It’s not going to be significant. It’s not going to be a big player like a Wits Basin type of a scenario.

ALEC HOGG: But it’s still sufficient – a couple of hundred thousand ounces.

DEAN CUNNINGHAM: It makes good money. If you do it on a profitability basis, on a margin basis, focus on that and don’t get too big, you can make a lot of money.

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