Gold miner Avesoro Resources (ASO:AIM) appears to have fixed its operational and financial pressures and now has an ambition to run a series of mines producing a combined 500,000 ounces of gold a year.

Buy the shares before the broader market cottons on to the rebirth of the business and its growth potential.

Remember Aureus mining?

You may be more familiar with the stock under its previous name of Aureus Mining. The company enjoyed success with gold exploration and attracted widespread investor interest as it developed the New Liberty mine in Liberia.

Unfortunately the company encountered financial and operational problems as it moved into the production phase. Setbacks ultimately damaged the share price.

Turkish group MNG Gold pounced on the opportunity to invest at a low level and bailed out Aureus with a $30m investment in exchange for 55% of the company. A further $60m investment took MNG’s position to 76.6%.

This financial injection helped the small cap to end an unfavourable agreement with a mining contractor, pay down a number of creditors and buy equipment.

Significant equity dilution was the price long-standing shareholders had to pay to keep the business afloat.

The company now has a heavyweight backer and chairman in the form of Mehmet Gunal, the founder of MNG Gold (now called Avesoro Holdings) and owner of Turkish infrastructure conglomerate MNG Group.

The first of several deals?

Avesoro is in talks to acquire two of MNG’s three gold mines, being Youga and Balogo in Burkina Faso. It also hopes to buy another ‘build-ready’ gold project in the next year or so.

MNG already had plans to have a listed gold business, so using Avesoro as the quoted vehicle makes more sense given it is already on the stock market.

Youga and Balogo are expected to produce between 100,000 and 110,000 ounces of gold this year. In contrast, New Liberty is forecast to produce 90,000 to 100,000 ounces in the same period.

Share price catalysts

Second quarter results in August may not be outstanding as the company is still making improvements to New Liberty. We’re told the third quarter results should show healthier cash flow.

Investors may have to be patient as the broader market may want to see a few more quarters of solid production before turning positive on the stock.

Avesoro is confident it can reduce operating costs below the original plan for New Liberty. A revised life of mine plan in late 2017 will enable analysts to update their financial models and hopefully put a much higher valuation on the business. (DC)

Avesoro Resources  (ASO:AIM) 2.7p

Stop loss: 1.5p

Market value: £143.8m

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