Wishbone Gold joined AIM in July 2012 as a gold exploration vehicle. The 2015/16 recession in the resources sector led the management to sensibly mastermind the acquisition of the gold trading business Black Sand in 2016, seeking to grow cash flow/profits via a different gold strategy.
Rapid growth in gold trading using the Marc Rich/Glencore model
Wishbone is financing equipment to dramatically improve gold production for artisanal miners in countries in Central America and Africa: the model is first being implemented in Honduras. In this way, the company can negotiate long term gold off-take contracts with attractive margins as Marc Rich + Co AG pioneered, which was the basis of Glencore.
First mill in production shortly with three more to follow in 2018
Artisanal miners provide 20% of world gold production. In Honduras, Wishbone has a pipeline of 4 projects and is teaming up with its US mining equipment supplier, Scotia International and the Honduran government. Rapid growth is expected by rolling out this strategy in S. America & Africa.
Proven management led by Sirius Minerals’ ex-CEO/Chairman
Aligning interest with shareholders, Wishbone management own the majority of the shares. CEO/Chairman Richard Poulden held the same roles at Sirius Minerals where he oversaw its transformation into a substantial potash company, with the share price rising from under 2p to 40p.
DCF analysis suggests upside of over 180%
Investors have enjoyed a near 200% increase in the share price in the last 18 months. Discounting forecast cash flows of the gold trading arm and using a peer comparison of the gold exploration projects gives a target price of 1.97p. With the shares currently trading at 0.70p we see material upside & initiate coverage of Wishbone Gold with a Conviction buy stance.
Wishbone Gold is a research client of Align Research. Align Research owns shares in Wishbone Gold. A Director of Align Research holds a personal interest in Wishbone Gold. For full disclaimer information please refer to the last page of the full document. This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.
|Year to Dec||2015A||2016A||2017E||2018E|
|Pre-tax profit/loss ($m)||(1.12)||(0.96)||(1.38)||0.86|