Enter the Black Dragon as new ASX gold stock defies market jitters

Enter the Black Dragon as new ASX gold stock defies market jitters

During a week when investors in the resources sector suffered from a serious bout of jitters, Black Dragon Gold (ASX: BDG) defied the trend to enjoy a warm welcome onto the ASX boards last week.

Black Dragon joined the stable of locally listed gold stocks following a $6 million initial public offering when its shares began trading on Wednesday.

After some initial stutters and stumbles, trading settled down and by week’s end – that is, after almost three full days of trading – Black Dragon was sitting at 23¢ on Friday, a 15 per cent profit on the 20¢ IPO price.

It may be too early to claim a victory for Black Dragon and managing director Paul Cronin but hopefully it is a sign of sustainble good news to come.

To put that in context, of the four other junior miners to list on the ASX in the past month with a 20¢ IPO price – Kingwest Resources (ASX: KWR), Tempus Resources (ASX: TMR), Sultan Resources (ASX: SLZ) and Coolgardie Minerals (ASX: CM1) – only Tempus is trading in the black.

Black Dragon pitched its float as a story of difference among the gaggle of juniors hitting the ASX boards.

Black Dragon does not need to find the gold needle in the haystack because it already owns 100 per cent of the Salave project in the Asturias region, in northern Spain.

Salave has a measured and indicated resource of 6.52 million tonnes grading 4.51 g/t gold, for 944,000 ounces, to make it a technically robust project and one of Europe’s largest undeveloped gold resources.

As Cronin and his float advisers, Hartleys, have pointed out during IPO marketing, they think the resource covers only a fraction of the potential mineralisation at Salave.

And the valuations applied to Salave leave Black Dragon with an enterprise value per resource ounce of less than $16, compared with an ASX peer average of around $35/oz.

Now these comparisons, despite being among peers, are never a simple case of apples versus apples, but do serve to highlight valuation gaps.

Drilling at Salave has been under way and assays should be released to the market in coming weeks, along with a “resource update” – which, in most investor’s language translates to a resource “upgrade” – that is pencilled in for late this month or early October.

As investors have seen this year, the challenge for new floats is to maintain the IPO momentum with positive news flow.
Black Dragon is aware of this and expects to keep the market updated with news.

One of the challenges – and scepticisms – that faced Black Dragon was Salave’s location in Spain, a country that has not always been a happy hunting ground for investors in ASX-listed mining stocks.

In an attempt to differentiate itself from less successful Spain hopefuls, Black Dragon has spent time and money investing in its local relations, including employing mining professionals who are respected in Spain.

It is also worth mentioning that Salave is about 40km from Orvana Mineral Corporation’s (TSX: ORV) operating El Valle underground gold mine, highlighting the Asturias region’s understanding of and support for mining operations.

It is also worth noting the gold sector’s biggest news of the week – Northern Star Resources’ (ASX: NST) $347 million acquisition of the 4.1 million ounce Pogo underground gold mine in Alaska.

The deal speaks volumes for Northern Star’s search for value, and highlights that arguably Australia’s most successful gold stock over the past decade has run out of value-accretive growth options here.

And we all know that greenfields exploration in this country has only made two world-class discoveries this decade – Gold Road Resources’ (ASX: GOR) Gruyere deposit and the Tropicana project, now being mined by AngloGold Ashanti (ASX: AGG) and Independence Group (ASX: IGO).

Unlike Salave, Pogo is an operating mine with reserves and limited execution risk.

But there is no reason Salave cannot become a valuable and high-grade underground mine as well and return value to the ASX in the way Northern Star envisages that Pogo will.

It certainly is clear that during times of commodity price turbulence jittery investors are looking more closely as near-term development opportunities, as was demonstrated by the enthusiastic response Africa-focused plays Cardinal Resources (ASX: CDV) and Golden Rim Resources (ASX: GMR) received at a special Investor Insight event in Perth during the week.

Cardinal is progressing feasibility studies around its Namdini deposit in Ghana, where it has defined an indicated resource of 180 million tonnes grading 1.13g/t for 6.5 million ounces.

Golden Rim talked up its Kouri project in Burkina Faso, where it has an indicated and inferred resource of 20.8 million tonnes at 1.5g/t for one million ounces – plus significant upside. Its pitch to investors: on an EV basis, its resource ounces are valued at $8 each.

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