Predictive Discovery (PDI) - Investment Slow Burn Hots Up Rapidly

Predictive Discovery, founded in 2007, is a an Australian mineral exploration company with a project portfolio business model. After 10-years of stagnation, in April, the market was excited by the diamond drill results released for several of Predictive Discovery's Guinean projects, with the market cap lurching from less than A$5M to over A$50M overnight, quoted in the company's investor presentation as a 733% gain in a 48-hour period.

The company owns a variety of land packages across Guinea, Côte d'Ivoire and Burkina Faso. This portfolio features five 100%-owned greenfield gold exploration projects in Guinea, 10 'prospects' with potential for multiple large gold discoveries in Côte d'Ivoire, and 8 'prospects' with an established Mineral Resource Estimate in Burkina Faso. The company has a JV with Resolute Mining in Côte d'Ivoire, but the current focus in on the projects in Guinea. The numbers are solid, but Predictive Discovery needs to carry out a more extensive drill programme to uncover its true scale. It aims to deliver a JORC compliant resource towards the end of 2021.

Matthew Gordon talks to Paul Roberts, 3rd July 2020

So far, investors might be frustrated that Roberts and his team have learnt on the job with investors' money, but this is all too common in the junior mining space. All will be forgiven if Roberts can deliver accretive value for long-suffering shareholders, but he is now under even more pressure to deliver such returns.

Starting with the non-core Burkina Faso assets, Roberts is pleasantly candid. The regional security crisis in the Sahel has been well documented by Crux Investors contributors, but Roberts claims that the feasibility of working on a project with an acceptable level of safety it is largely dependent on the specific location within the country that the project is located. Predictive Discovery's projects are in North-East Burkina Faso, a real terrorist/criminal enterprise hotspot. The tenement package runs over 100km along strike from the Niger border down towards Golden Rim's gold property. There are several issues for the company in the region. Chiefly, the company is not at a development phase. In order to engage in the earlier stages of exploration, the amount of security that is required becomes problematic. It is NOT POSSIBLE to work up in the North-East of Burkina Faso safely right now. However, further to the South-West of the country, it becomes more feasible, provided a company has a detailed plan and a high tolerance for physical risk. Once a company has a mining operation, securing it becomes possible. Right now, Predictive Discovery is not doing any work right now. He believes these projects may have a place in future development, but he doesn't think that Predictive Discovery will be the company to deliver this; it simply does not have the tolerance for such a high degree of physical risk. The market attributes 0 value to the projects. There are much safer fishes to fry for Predictive Discovery.

In the Ivory Coast, the current activity is taking place at the Boundiali Project, one of the JV projects shared with Resolute Mining. A discovery was made there in 2016, the Nyangboue Prospect, and 2km of drilling at a 6km soil anomaly through up some "very nice" results. As it stands, the company would define mineralisation of c. 1km. As it stands, it won't reach 1Moz, but if it could be taken to depth, this number may be reachable. The work that hasn't yet been done is exploring the 4km to the north: the current activity. Resolute is actively drilling, and Roberts is hoping for some news over the next 1 to 2-months. All in all, the project offers up 19km of gold soil anomalies. Success is in the hands of Resolute Mining and their appetite.

The other JV project is Ferkessedougou North, featuring a 17km-long gold-in-soil anomalous trend. The anomaly of primary focus is the Ouarigue South Gold Prospect. Roberts thinks it is the "most interesting (ore) body" found in the Côte d'Ivoire so far. It is strike limited and "fat," but the company announced some good drill results on the 16th April, just a day after the Guinea results were announced. New investors have clearly been impressed by the value proposition on offer. Ferkessedougou North's resource persists at depth. It is a granite-hosted body and a 10km section directly along strike that appears to be on a structure has seen no drilling whatsoever. Continued drilling could throw up some exciting numbers.

The agreement with Resolute Mining appears to be satisfactory for the major right now, and should "certainly" keep the company interested for the next 12-months. Predictive Discovery "expects" Resolute to go and do more work at Ferkessedougou North in the near future, likely before Christmas. Resolute is also interested in the "unfinished business" at Boundiali. It appears that this is the largest Greenfield investment that Resolute Mining has, so it must be interested in something. However, this is exploration. If Predictive Discovery's projects can't deliver the desired scale, at least 2Moz, Resolute is likely to step back, and the projects will need to be reclaimed as a smaller-scale operation. Predictive Discovery is currently a contributing partner in the JV, holding 23.5% equity. A new programme is presented every 6-months, and the company has the option to decide whether to contribute or not. The "dilution phase" ended in June of last year, and the contribution phase has now commenced. The market is not currently attributing much value to the JV.

In Guinea, the 100%-owned exploration projects are Kankan, Nonta, Kaninko and Boroto. Predictive Discovery holds c. 500km2 of prospective landholdings and all projects contain artisanal gold workings, a good indication of the presence of gold. Four of the projects lie within the Siguiri Basin, which hosts Anglogold’s large Siguiri Mine (+10Moz). At Kaninko, the drill results featured broad, high-grade gold mineralisation of up to 46m at 6.58g/t gold from 4m, confirming a discovery with excellent growth potential. 70% of the 24 reported drill holes were mineralised, and there were several high-grade intercepts.

Results from a 24-hole aircore and reverse circulation drill program on the North-East Bankan prospect threw up broad north-trending zones that are at least 450m long and open in all directions. Furthermore, the 46m intersection was 10m at a whopping 26.52g/t from 34m, while an equally impressive result demonstrated 42m at 2.92g/t from 8m. These sorts of anomalous grades aren't necessarily rare for the area, but they are undeniably encouraging.

After completing its most recent raise on the 6th June, Predictive Discovery has raised roughly US$40-50M over its 10-year lifecycle. Roberts isn't worried about a potential overhang because he believes the recent turnover of the stock has been "mind-bogglingly" large and most of the tide sellers have gone. Aurora recently sold some of its shares, which hasn't helped, but Roberts thinks most of it has now washed through, especially with the finalisation of the recent financing.

With the US$9M cash in Predictive Discovery treasury, the bulk of the money will go to Guinea, and the bulk of that will go on Kaninko. This appears to be the key to getting the market excited.

Roberts owns 5.5M shares from the c. 824M outstanding. All were purchased on the open market. Nobody has received a pay rise just yet...

Moving forward, Roberts will need to add some institutional shareholders into the mix to give the stock some stability. Right now, there are very few shareholders with more than 5%. It will be interesting to track the company's progress; when will the company provide enough substance to the market to attract institutional investment?

What did you make of Paul Roberts and Predictive Discovery?

Company Website: https://www.predictivediscovery.com/