In Brief: Aurum, Hillgrove & Little Green Pharma

This story features AURUM RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: AUE

Under-appreciated and unknown gold/copper plays with a touch of cannabis cash flow.

-African gold explorer in focus
-Leveraged copper price play
-Cannabis minnow grows up 

By Danielle Ecuyer

Back to Africa

Casting our focus to the Cote d’Ivoire, US resource research house Hallgarten + Company has initiated coverage of ASX-listed Aurum Resources ((AUE)) post the announcement of the merger with Mako Gold ((MKG)).

The aim of the corporate combination is to expand exposure to gold exploration projects in northern Cote d’Ivoire in the Napie and Boundiali zones.

At a proposed one Aurum share for every 25.1 Makum shares or an offer price of $0.018, the pricing represents a 112% premium to the previous 30-day volume-weighted average price.

Post transaction, Aurum shareholders will own 79.5% of the entity and Mako shareholders 20.5%.

Hallgarten highlights the merged company increases Aurum’s existing assets to one of the largest exploration exposures in the African country with $20m in cash on hand.

The broker also points to a very experienced board of directors and management team with the successful precedent of bringing Tietto Minerals’s Abujar mine to production before selling it at a large premium.

One of the key differences with Aurum’s management, formerly of Tietto, is the ownership of its own rig fleet. 

In contrast to “conventional wisdom” ownership of the fleet enables a lower drilling cost per metre with better controls on both timing and crews, the analyst explains, thereby alleviating any waiting times for rigs and maximising flexibility.

Aurum management asserts the cost per metre is US$45 against US$100-US$300 being paid by others.

The analyst points to Aurum’s three rigs which will allow for drilling around 4,000 metres per month. From August, the company will have six rigs with potential up to 8,000-10,000 metres per month.

The Boundiali greenstone belt where Aurum is exploring is viewed as a “good address” which has previously attracted Barrick Gold, Predicative Discovery ((PDI)) and Resolute Mining ((RSG)). From a macro perspective, West Africa is seen as a more advantageous region from a cost, climatic and geographical topography perspective.

Hallgarten starts off with Buy equivalent rating alongside a maiden target price of $1.05, emphasising if management can achieve even a fraction of what it previously achieved, then Aurum should become a “top performer”.

A day after the initiation, Hallgarten followed up with an initiation of coverage of Nasdaq- and ASX-listed 5E Advanced Materials ((5EA)) with a Neutral rating and 6.5c target (US40c), suggesting the shares are presently not attractively priced.

What’s old is new again 

Hillgrove Resources ((HGO)) caught my attention this week with three non-daily FNArena monitored brokers espousing the company’s potential as Australia’s newest copper producer.

Hillgrove restarted the existing Kanmantoo mine in South Australia in early 2024 and announced a substantial increase in its mineral resource base this week, almost doubling contained copper to around 150kt from under 80kt plus an increase in contained gold by 138%. 

Canaccord Genuity believes the updated resource confirms the miner’s operating strategy to increase the Kanmantoo mine life beyond current assumptions of five years. Wilsons reinforces that view and believes there is scope for an extension in mine life to a base case of six years based on conservative assumptions with the latest update supporting a potential eight-year mine life.

Wilsons notes every one-year extension in Kanmantoo’s mine life equals a 1c rise in the company’s valuation, compared to the broker’s target price of 8c. 

Hillgrove also has substantial franking credits, sufficient for an estimated $50m in fully franked dividends sometime in the future.

MST Access explains, unlike other junior copper plays, the positives of a brownfield restart include the de-risking of technical and geological issues, and make Kanmantoo a “relatively simple, single mine operation”.

Canaccord forecasts 7mt of copper at 1.08% and 0.16/t of gold with a five-year mine life and arrives at a Speculative Buy rating and 10c target.

Wilsons stresses the company is not well known to investors and although the share price has advanced around 25% since initiation of coverage, the analyst suggests the company should not be dismissed for its former four-year mine life.

The broker beats the drum there remains “very high potential for resource upgrades” and resulting mine life extensions. Buy rating equivalent and an 8c target.

MST expects all-in-sustaining costs of $4.20lb which is higher by 12% than the Kanmantoo Economic Assessment, as well as a two-year mine life extension to an annual rate of production of 14kt. The analyst stresses the shorter mine life on a relative basis and “moderate” position on the cost curve, makes Hillgrove very leveraged to the copper price. Target price 12c.

Unfulfilled demand drives revenue growth

Canaccord Genuity can barely suppress enthusiasm for Little Green Pharma‘s ((LGP)) September quarter, describing the results as a “watershed”. 

Delivering growth in revenues of 65% in the quarter on the previous corresponding period with expansion in cash receipts of 44%, the results proved “materially” above the broker’s forecasts.

A spread across geographies (Australia and Europe) as well as products (flowers and oils) and brands displays a depth of growth for the company.

The combination of lower costs and higher revenue growth allowed the cannabis company to achieve positive cash flows without the support of R&D rebates. As the analyst emphasises: the underlying business is performing strongly.

With debt on the balance sheet of $3.7m, positive cash flow makes it easier to manage debt servicing costs, although the company also has $4.8m cash in the bank.

Regarding the outlook, Canaccord injects a dose of reality, highlighting revenue streams have been historically “lumpy”. The analyst cautions at being overly optimistic with expected revenue forecasts to remain flat over the last two quarters of FY25 which would still generate 48% growth annually or around $38m.

With strong demand, two more product launches in the 2H25, and a limited supply response in the market, the outlook proposed is not viewed by the analyst as excessively upbeat.

Canaccord has upgraded the stock to Speculative Buy from a Hold rating with a rise in the target price to 21c from 17c.

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