Traders Cafe with Zak Mir: Caracal Gold

Caracal Gold (GCAT) came to market at the end of the summer. While it has had a decent journey thus far on the stock market, given the metals prices rally and the inflation boom driving this as a backdrop, some may argue that the shares should be much higher than 1.2p currently. The company, which has been backed by the broker du jour Clear Capital and PR agency First Look Ventures,  has managed to negotiate a volatile time in the markets better than most.

Project Infrastructure

Bulls of the stock point to the way that GCAT provides a unique opportunity to still be able to buy into the start of a growth journey of a new gold production / exploration company.  Geographically it is well placed for major expansion in East Africa, with all the heavy lifting of project infrastructure already in place. With £20m plus of cost paid for by previous project owners, the present market cap well below this number suggests that Caracal is primed to deliver for its shareholders. Indeed, if one adds the money spent (something the market seems to have missed) to the present market cap a fundamental share price target for GCAT should be well north of 2p.

Value Creation

The other major point to note is that this is certainly not a company that sits on its hands. In the six months since listing the leadership team has successfully strengthened the company in all departments, and with such a low market capitalisation at £15.9m, they have created significant value.  They have also had the foresight to purchase outright two drill rigs RC/DD, and to train up the crews operating them, keeping all exploration drilling campaigns in-house.  This has involved training up a local Kenyan (97%) workforce of around 500 working at Kilimapesa mine. ESG lovers will note the creation of strong foundations within the community as the operations will positively affect the local economy indirectly benefitting thousands of households in their community.

Kilimapesa

GCAT has also completed in a timely fashion, two phases of a three phase expansion program at Kilimapesa mine. This has meant doubling productivity considerably to 1000 oz of gold per month in the process. The new target from phase three will be doubling production again to 2000 oz per month, using ingenuity in three different processes to extract gold from the mining process and the lower grade waste by-product. This has made the whole processing plant much more efficient in extracting gold, increasing the profit margin with every expansion. The company has also completed a small fundraise to ensure there is enough funds available to complete their phase three major expansion plan.

Tanzania

The company has also made shrewd acquisitions in Tanzania, namely Nyakafuru & Simba, adding over 1m oz of JORC compliant resources. Increasing the overall group resource represents around a 150% uplift.  Currently with the 100% increase in production, 150% increase in group resource and having the available funds to complete phase three expansion plan, there has been no reflection of this yet in the share price. This state of affairs is unlikely to remain for long.

Management

GCAT has also invested in the leadership/ management,  bringing onboard a very experienced general manager to oversee the expansion / exploration.  A new experienced CFO is now on board to help enable the seamless input of liquidity needed in the growth phase. A new experienced ESG director is also at hand so that the company achieves relevant compliance in this area going forward. Interestingly, the brave decision to remove  a couple of former directors with no experience in the area of growing a mining company has also been made.  Overall,  there is now strength and depth in every aspect of management, who all have the necessary experience required to take GCAT from a micro cap to mid tier company.

Strategic Importance

Acquisitions are being integrated into the company and the current asset holders are also buying into the companies ambitions. There are big players already anchored in the region and it is likely they will take notice and have a good look at GCAT from a M&A perspective, and strategically, as it proves up and expands into a multi asset gold mining company.