Nexus Scores a Coup or Two
Investing in mining companies based in Africa can be problematic. Some countries such as South Africa are near basket cases despite a long history of mining. Others such as Zimbabwe are basket cases where only an idiot would consider mining. South Africa is about to pass a new mining law that will take them out of the near basket case category and place them firmly in the basket case group.
Kenya for example has no effective mining law. It’s been in the works for decades but the government can’t quite find it in their power to define conditions under which foreign mining companies can operate under a fixed set of enforceable laws that everyone knows. Tanzania is a swamp of corruption where foreign companies invest at their peril in spite of the country being endowed with diamonds and gold in perfusion.
But there are a few diamonds among the coal as it were. Burkina Faso has been the fastest growing gold producer in Africa for the last ten years. Between 2006 and 2015 gold production in Burkina Faso increased an incredible 2140% from 1.6 metric tons to 35.8 metric tons. I’ve been to the country four times visiting mining projects and while the accommodations and food leave something to be desired, it’s a mining paradise in Africa with the government firmly behind foreign investment.
I went to visit Dwayne Melrose at True Gold at their Karma deposit in Burkina Faso just over three years ago. Their stock was about $.31 a share. Even though we went through another two years of disaster after disaster in the junior gold spectrum, True Gold kept increasing their resource, kept advancing the project to production and were bought out by Endeavour Mining in a $240 million dollar buyout in March of this year. In a little over two and a quarter years, the stock just about doubled in one of the worst bear markets in history.
While I was visiting True Gold, we drove to their second major project in Burkina Faso, the Liguidi prospect some 125 km to the south east of Ouagadougou. We did the standard looking at maps and drill core and drove to an area where artisan miners were sinking 10 meter shafts and going down to the bottom sitting on buckets and being lowered on a rope over a pulley. It was pretty primitive but life is short and brutal in Africa and you make money while the sun shines.
After our visit, we drove half way back to Ouagadougou and stopped under some trees to eat our bag lunches. I was bored so I took my rock hammer and picked up some likely looking quartz rocks to play junior geo with. I’d hammer on a rock not expecting to really find anything and then peer through my loupe for some visible gold. To my great surprise, I found gold. Then I did it again 50 meters away from the first spot. I was convinced the real geos on the trip would be quite impressed with my feat. All the Burkina Faso geos looked at the rock and said, “Yup, you have some gold.”
Then they told me it’s all over the country and there are potentially dozens of mines possible with some money spent on exploration and drilling. We were in a trend running north/south and there was gold for many miles in all the quartz rocks. It wasn’t bonanza grade 5 ounce ore but it was gold, visible gold, and quite suitable for low cost heap leaching.
A few weeks back someone contacted me with a company they wanted me to look at. It was in Burkina Faso and the fellow talking to me wanted to expound at length about how great the country was for mining and exploration. I stopped him in his tracks and said, “been there, done that. I’ve been to three projects that turned into mines, found gold while eating a sandwich and think it’s one of the best countries in Africa to work.”
So I looked at the company he wanted me to look at. Most of the time you can’t really tell much from a website. A mining project is a mining project and if you’ve seen a hundred of them, you’ve seen them all. But Nexus Gold (NXS-V) surprised me. It wasn’t just the prior drilling by Riverside and Roxgold that included the standard Burkina Faso Greenstone Belt grades and thickness of 40 meters of 1.55 g/t Au and 35 meters of 2.2 g/t gold and 12 meters of 5.46 g/t. The Bouboulou project is in a cluster of existing mines on a 120 km strike length. But one thing really did reach out and poke me in the left eyeball.
Their deal on the Bouboulou (pronounced just like it is spelled boo boo loo) was signed on July 11th, 2016. It calls for cash payments of $500,000 USD over a three-year period to get a 75% interest in the property. In addition, they have to issue 900,000 shares to the property owner. The deal is rear end loaded requiring only cash of $45,000 USD before the two-year anniversary. So their cash isn’t going into the hands of the prior owner, it’s going into the ground. They have two years to put up or shut up and it costs them peanuts.
When they have completed the property payments and share issue to get the 75% they can get the remaining 25% for a payment of $1 million USD with their option partner retaining a 1% NSR.
If you got any closer to stealing than a deal like that, you would go to jail. Essentially they are buying 100% of a major gold project in the West African Greenstone Belt for $1.5 million and some paper and a little tiny 1% NSR.
I don’t know just how many properties I have visited in the last 15 years or how many deals I have read about but that’s about the best deal I have seen in hundreds of penny dreadfuls. Nobody does deals with a 1% NSR. I’ve seen deals with 5% NSR and higher. Those sorts of deals means the original landowner ends up with the majority of the profit and takes none of the risk. A 1% deal is wonderful.
That impressed me. As with everything else, you don’t make your money when you sell, you make your money when you buy. If you buy anything “Right” you have a great chance of making money. The property has had over 25,000 meters of drilling already. The former Chief Geologist for Roxgold, Warren Robb wrote the initial 43-101 in 2012 and is planning and supervising the exploration program for NXS including a 2,000-meter phase 1 drill program.
I’m impressed. These guys just scored a coup picking up a known gold project with a good history in one of the most dynamic mining countries in Africa and they did it for pennies. With a market cap of about $5 million US they offer great leverage to gold. If you like gold, you have to love Nexus.
Then they did it again. They signed a letter of intent on a project they call the Niangouela concession on the 22nd of November that calls for cash payments of $370,000 USD and 600,000 shares to get 90% of the property. They can buy the remaining 10% for an additional $1 million US and the same 1% NSR.
Nexus Gold is a cheap option on gold good for at least two years. They just did the best two deals I have seen in fifteen years. They have the management bandwidth, the technical team and enough money to get started. If we are in the gold bull market that I believe we are, their shares are going to go up a lot. In addition they have 25 million warrants at $.075 that would fund a serious drill and exploration program on the potential of two future Burkina Faso gold mines.
Nexus is an advertiser and I am biased. Do your own due diligence.
Nexus Gold Corp