Cardinal Resources – (ASX: CDV, Share Price: $0.30, Market Cap: $143m, coverage initiated @ $0.29 in June 2016)
Key Catalyst
Nord Gold SE acquires a 19.9% stake in CDV and also lodges a non‐binding indicative and conditional takeover proposal for CDV, priced at $0.45775 per share.
CDV has performed solidly since our coverage initiation back in June 2016, driven by highly successful exploration drilling programs at its flagship Namdini project in Ghana, which in turn has led to the establishment of a multi-million-ounce gold resource base. Whilst CDV pursues additional resource growth, it’s also strongly focused on advancing Namdini to production status, with a recently completed Bankable Feasibility Study (BFS) forecasting low-cost gold production over +15-years. CDV is now focused on securing project funding. CDV has also enjoyed success at its new Ndongo East discovery, 24km north of Namdini, with high-grade near-surface gold mineralisation over a 1.2km strike length that’s hosted within a larger target area measuring approximately 7km in strike length. CDV is also maintaining exploration programs at its Bolgatanga (Northern Ghana) and Subranum (Southern Ghana) Projects.
Latest Activity
Nord Gold Proposes Takeover Offer
CDV has advised having received a preliminary takeover proposal of $0.45775 per share from its largest shareholder, UK-based Nord Gold SE.
The Norgold offer is referred to by CDV as being non-binding, with CDV yet to receive a formal offer that is capable of acceptance. While urging shareholders to take no action at this stage, CDV has appointed a special purpose committee to consider international gold producer Nordgold’s correspondence.
Nordgold advised the market on Monday that it had had increased its interest in CDV to 19.9%, as a result of agreeing to purchase Gold Fields’ 16.6% stake at $0.45775 cash per share. The purchase is scheduled to be completed by Wednesday this week.
Nordgold as part of its full takeover proposal, has requested access to undertake four weeks’ worth of due diligence on CDV’s Namdini project. If due diligence is completed to Nordgold’s “satisfaction”, it says it will issue a binding preliminary proposal.
Technical Significance
Nordgold’s non-binding offer is an opportunistic one, as it looks to take advantage of the recent carnage on world equity markets, which has seen a capitulation in the market valuations of gold companies with advanced resource projects. What’s more, despite the recent falls in gold equities and gold bullion, the bigger picture with respect to gold appears to be outstanding – with lower interest rates, a weaker US$ and higher debt levels around the world, providing fertile ground for higher gold prices.
CDV, with its advanced, multi-million ounce Namdini project, therefore presents itself as an ideal candidate – and hence it should come as no surprise that a suitor has emerged. Indeed, we have consistently flagged the potential for corporate activity with respect to CDV, especially in a market environment where securing project developments funding has proven problematic.
Nevertheless, caution must be shown in that Norgold’s offer is currently non-binding and the company must first complete satisfactory due diligence. Therefore, there is uncertainty as to whether Norgold will ultimately make a binding takeover offer.
One would imagine that CDV’s joint financial advisors – Maxit Capital LP (Nth America), Hartleys Limited (Australia), BMO Capital Markets and Canaccord Genuity – will be exploring all options to extract full value from any suitor. It is possible that other suitors could well emerge.
Project Overview
CDV is a West African gold‐focused exploration and development company that holds interests in tenements in Ghana. The company is however focused on the development of its Namdini Project, which hosts a published gold Ore Reserve comprising 5.1Moz (138.6 Mt @ 1.13 g/t Au; 0.5 g/t cut‐off), inclusive of 0.4Moz Proved (7.4 Mt @ 1.31 g/t Au; 0.5 g/t cut‐off) and 4.7Moz Probable (131.2 Mt @ 1.12 g/t Au; 0.5 g/t cut‐off).
Bankable Feasibility Study
CDV released the results of its much-anticipated Namdini Feasibility Study during October 2019, confirming it as a gold project with attractive economic returns.
The Study forecasts 4.2Moz of gold will be produced over a 15-year period at an All‐in Sustaining Cost (AISC) of US$895/oz, compared to 3.9Moz at US$769/oz in the Pre‐Feasibility Study (PFS). Namdini will comprise a single, large open‐pit with a conventional process plant design.
The Ore Reserve of 5.1Moz represents a 7% increase on the 4.76Moz Ore Reserve in the PFS. The project is forecast to generate US$1.46 billion in undiscounted, pre‐tax free cashflow over a 15-year mine life at an assumed gold price of US$1,350/oz, increasing to US$2.05 billion undiscounted, pre‐tax free cashflow at a gold price of US$1,500/oz.
Namdini Project Net Present Value (NPV) and Internal Rate of Return (IRR) are forecast to be US$914 million and 43% respectively (pre-tax), along with US$590 million and 33.2% (post‐tax), based on a US$1,350/oz gold price.
Project capex is estimated at US$348 million capital expenditure with a US$42 million contingency, which is down 16% from the PFS capex estimate of US$414 million. Capex payback is estimated at just 21 months based on a US$1,350/oz gold price, with payback falling to just 12 months based on a US$1,500/oz gold price.
The Feasibility Study demonstrates a viable, globally significant, long‐life gold project at Namdini. With more than 1 million ounces of gold slated for production during the first three years, 421,000 oz in Year 1 alone and an average annual gold production of 287,000 oz over a 15‐year mine life, Namdini ranks amongst the world’s largest known, financially-robust, undeveloped gold projects.
The rapid payback period is driven by a combination of early high grades and recoveries, low strip-ratio (and low costs within the starter pit. (AISC) are estimated at just US$585 during the capex payback period.
Summary
CDV, with its advanced, multi-million ounce Namdini project, presents itself as an ideal takeover candidate for a company like Norgold. Indeed, we have consistently flagged the potential for corporate activity with respect to CDV, especially in a market environment where securing project developments funding has proven problematic. In the meantime, we await Norgold’s completion of due diligence and the potential for other suitors to emerge.
