If the underperformance of mining shares is leaving investors scratching their heads, the major discounts being attributed to high quality junior miners is just as compelling. Mark Bristow, CEO of FTSE 100 listed gold producer Randgold Resources, summed things up nicely suggesting that the junior mining space was ripe for an uptick in M&A activity and saying that buying junior gold miners is a “cheap way to do exploration”.
But mining is not a straightforward process. Financial institutions remain cautious lenders at best, and project finance is becoming increasingly difficult to secure. A constraint on capital and cumbersome bureaucratic requirements have pushed Hambledon Mining into suspending development at its Sekisovskoye underground gold mine in Kazakhstan.
What was the source of the capital constraint? The company has been levied with a total of US$9.5 million in remedial payments and fines concerning the tailings dam incident and has been involved in an expensive court action relating to the incident.
Rather than lament their lack of capital, management at Hambledon will do well to take note of events at Cluff Gold. In what is a unique move, early stage producer Cluff and has agreed a US$20 million investment deal with Korean trading company Samsung C&T.
What has attracted Samsung? In exchange for funding Cluff Gold’s West African operations, Samsung will be allowed to buy 1,929 ounces of gold a month from Cluff at a 2.25% discount to the London benchmark price.
Samsung C&T has had various interests in the mining industry. The company was part of a group which bought a 5% stake in the Ambatovy nickel mine in August 2010, while it also previously owned a 60.8% stake in Kazakhmys plc in 2002, before selling it down in 2004.
Samsung’s move shows that not only are retail clients, investors and central banks looking to bolster their gold holdings, corporations are keen to get in on the act also. What makes the deal stand out for Cluff is that it does not require any hedging of future production thus leaving them fully exposed to movements in the gold price.
In the impending edition of our magazine we opine further upon the compelling valuations in the mining sector aswell as taking a look at Condor Gold. Register on the right to receive your edition tomorrow.