[miningmx.com] — HAS Neal Froneman, Gold One International CEO, done enough to exorcise the ghosts of the Dominion mine, the uranium venture the failure of which unhinged the share price of Uranium One to such devastating effect?
It may seem harsh to keep beating Froneman with the uranium episode, but at the time of Uranium One’s distress, Froneman’s disinclination to properly inform the market about the firm’s ramp up troubles was an act some US funds said they’d never forgive. Ever.
Proving there’s no such thing as forever (especially in the gold industry) Gold One, however, looks like the start of a remarkable comeback for Froneman. After worryingly missing a couple of production deadlines from the firm’s key South African gold asset, Modder East, the company has just completed its second successive quarter of achieved targets. Froneman reckons the company needs two more quarters where delivery matches the hype to properly win the trust of the market.
Output is relatively small – 120,000 oz of gold is expected this year – but the company produced a profit that investor relations exec Ilja Graulich, said was at the upper end of guidance. It was, and inspired Andrew Muir, from the Perth-based stockbroker, Hartleys, to declare that the company positioned for a rerating.
“Gold One is now starting to hit its targets and demonstrate its profitability,’ he wrote in client note dated January 31. “As the company continues to do so, we expect the market to continue to rerate Gold One. We continue to rate Gold One International as a speculative buy’.
Froneman’s view is a rerating, stronger paper, will be used be finance more aggressive growth, even though the company has cash of nearly R78m. He once spoke of hoovering up cash-strapped gold juniors in Australia, the kind of consolidation that may not now be available given the gold price gains. Relative valuations also continue to be a problem for Gold One.
Says Froneman: “We do see value, certainly in South Africa. We do see opportunity for value accretive deals, even at these levels. But geographic diversity is also important’. In a potentially crucial statement, Froneman observed that externally listed companies attract a discount owing to their African exposure. He’s referring to the discount that last year led Barrick Gold to demerge and separately list its African assets as African Barrick.
Gold One’s share price has been under pressure lately.
From about R2.65/share in November, the company is now trading at R2.14, perhaps mirroring gold’s recent correction. Froneman adds, however, that Gold One isn’t a marginal play and would therefore not respond to the recent weakening of the rand, or another surge in the gold price for instance.
“We’re all tarred with the same brush,’ said Froneman of a recent correction among South African gold counters.
Says Avishkar Nagaser of Macquarie First South Securities: “Delivery on production (and cost) targets in 2011 remains key for GDO (Gold One International). We maintain an Outperform recommendation with a target price of R2.78′.
