Liongold Corp

Kim Eng on 13 Mar 2012

Background: Liongold Corp Ltd (formerly The Think Environmental Co Ltd) invests in and manages gold mining and exploration businesses. It owns mining concessions in countries such as Ghana, Mali, Mongolia and the Philippines. Liongold aims to develop its existing gold mining licences into physical production while continuing to amass such licences in gold-rich regions. It is also divesting its environmental businesses to focus on gold mining.

Recent developments: Liongold made a takeover bid for Australian-listed gold exploration and mining firm, Signature Metals Limited (SML), last December. The all-share general offer values SML at S$69.6m, a 54% premium over its market cap at the time of offer.

Started with small-scale mining. Liongold’s foray into gold mining started with the acquisition of a 70% stake in Mornington Offshore Inc last February. The latter holds mining licences in Mali, Ghana, Mongolia and the Philippines. Liongold aims to use modern methods to recover gold that was not previously available to alluvial miners.

SML bid a major milestone. SML focuses on gold exploration and mining in Ghana, West Africa. It has a 70% interest in the Konongo gold project, which comprises 192 sq km of granted tenure and contains 16 gold deposits along Ghana’s historic Ashanti Gold Belt. SML has JORC-certified resources of 1.47m oz of gold. Liongold believes that SML is undercapitalised, underperforming and there is strong development potential with some capital injection.

More acquisitions to come. Liongold intends to be a driver of consolidation in the gold mining sector and is currently reviewing eight other acquisition opportunities. Its target investment exposure would consist of 45% in first world markets, 45% in emerging markets and 10% in challenging environments.

A hard-to-value business. The stock trades at a historical PER of 730x and P/BV of 13.6x. But current financials mainly reflect its environmental business while ignoring the valuation and potential income from its gold mining operations. While this is a unique company which offers investors an alternative exposure to gold, we would prefer to see more concrete development in gold production to be sure. Key risks include its ability to recover gold from its mines and a decline in gold price.