Toubani Resources (TRE) - Barrick & B2Gold Expanding Mali Operations

Toubani Resources Inc. (Formerly African Gold Group Inc.) is a listed Canadian gold company with expansive holdings in West Africa’s prolific Birimian Greenstone Belt including more than 460 square kilometres across Mali and Burkina Faso. The company is focused on the development of the Kobada Gold Project located in Southern Mali, a low capital and low operating cost gold project with the potential to produce more than 100,000oz of gold per annum along with a 16-year mine life.

Matt Gordon caught up with Danny Callow, President, and CEO, Toubani Resources. Mr. Callow has over 25 years of experience in building and operating mines in Africa. He was Head of African Copper Operations for Glencore PLC, CEO and Executive Director of Katanga Mining Limited, and CEO of Mopani Copper Mines PLC. Mr. Callow is a Professional Mining Engineer and holds an MBA from Henley Management College, a Bachelor (Hons) of Mining Engineering from the Camborne School of Mines, and a Non-Executive Director professional diploma from FT-London. Mr. Callow has overseen more than $2.5Bn in mining projects from conception through to full production.

Company Overview

Toubani Resources is a Canadian exploration and development company with a focus on developing a gold platform in West Africa. The company has a highly experienced board and management team with a proven track record in the African mining sector, operating mines from development through to production. The company was founded in 2002 and is headquartered in Toronto, Canada. It is listed on the Toronto Stock Exchange (TSX-V: TRE)

Mali’s Mining Landscape

Toubani Resources is a Mali-focused developer and explorer that has a sizable resource and reserve base in southwestern Mali. The company has over 1Moz in resources along with the ability to develop a 16-year mine life with the first 10 years comprising over 100,000oz in annual production.

The past 6 months have been challenging for the company due to the market conditions. Furthermore, the company also faced issues due to sanctions in Mali that have been harder on the juniors compared to the producers. Last weekend, ECOWAS (Economic Community of West African States), the West African Union lifted the sanctions and accepted the 2-year election timetable. This recent development is key for the majority of the financial institutions that are looking to get back into the space.

Financial institutions such as Corus bank, Ecobank, and Banque Atlantique have been quiet as a direct result of the sanctions. Despite the bad press, Mali remains to be the fourth biggest gold producer in all of Africa. In a recent development, Barrick Gold extended its mine reserve life up to 2037. The company is producing around 550,000oz-600,000oz out of Mali. B2Gold has taken over Oklo Resources Ltd. This news has received an overwhelmingly positive response across the country. B2Gold is also putting together a $35M drilling program in order to extend the existing concessions. Some of the largest gold mining companies have been bullish on Mali.

While the ongoing sanctions haven’t hindered Toubani Resources’ ability to deploy drill rigs, it has certainly affected the company’s plan to advance the project to the next stage.  The company has a strong project with 1.2Moz reserves in the ground and a 3.2Moz current resource. It has conducted extensive work on the project's technical aspects and is confident that it can deliver a substantial free cash flow, once the project is under operation. The company is facing challenges similar to other junior mining companies operating within the space, especially when it comes to transitioning from an explorer to a developer and from a developer to an operator. These transitions require considerable funding and the current market conditions aren’t conducive to the capital requirements required for project advancement.

Financing Considerations

Toubani Resources has been in discussions with the Corus Bank of Finance, Hummingbird, Banque Atlantique, and Ecobank in relation to the debt financing. The conversations were stalled due to the onset of the sanctions, however since the sanctions have been lifted, the discussions can now be resumed.

The financial institutions have indicated that Toubani Resources has been on their radar throughout the period of sanctions, however, the situation had restricted the inflow and outflow of capital in the country. Following the removal of sanctions, the company anticipates that the next 6 months will be crucial for the project.

Based on the market cap versus the equity, the company would need to raise around $60M. Over the past few years, It has been evident in the junior market space that companies that effectively can manage the debt portion can get a good run at the price. Toubani Resources anticipates that once it reaches closer to its peers in terms of evaluation, it could potentially get a re-rate. The re-rate is expected at over $100M, making equity raising much easier. However, the company would still need to balance the debt with the equity.

As per the company, there are several case studies in Mali and Burkina Faso over the last few years where the TSOs and West African resources have gone ahead and acquired debt-based financing. As a result, the company is confident that it will be able to score a win from the Board on the debt side of the equation, which would provide the needed recognition in order to bring the project into production.

Once it enters production, the company is looking at a $500M NPV (Net Present Value) along with a $30M to $60M post-tax free cash flow on an annual basis. The company has a strong trust in the project’s equity. It is looking to attain wins at the board level, which in turn, would lead to a share price appreciation. A higher share price would enable the company to negotiate better terms for the equity component.

An ASX Listing

Toubani Resources intends to carry out a dual listing on the TSX and ASX (Australian Stock Exchange). In the past 18 months, the company has seen exceptional support from Australian shareholders and institutions. The Australian market has a strong understanding of the West African market. Companies, in general, have seen better improvements on the ASX compared to the TSX within the same time period.

The dual-listed companies have seen the same strong shareholder support from the existing shareholders. An ASX listing opens up opportunities for other institutions that typically don’t invest in the TSX. The company anticipates that once the ASX listing is in place, it will start seeing an increase in traded stock volume. This would make way for significantly more opportunities by increasing the company’s shareholder and institutional shareholder base, 30% of which currently comes out of Australia.

The current share price is challenging as it is effectively giving away the company’s value at a much lower price point.  In order to remedy this issue, the company has been working on several advances and has entered discussions with various entities. The problem is that the majority of these discussions are centred around the market value and VWAP (Volume-weighted Average Price) as opposed to the project value. The company finds itself in a massive disconnect between a $500 NPV project and a $20M market value. Even a 100% share price premium at 9.9% or 19.9% won’t be representative of the actual project value.

The company anticipates that these market conditions will improve over time, but in order to get through the challenging times, it will require additional funds in the bank, before a forward-moving strategy can be devised.

Toubani Resources has had discussions with multiple Royalty and Streaming companies. Despite the uncertain times, these companies remain highly active. Notably, there has been a lot of consolidation in the royalty and streaming market over the last year. The company does not favour a structured, short-term bridging debt as it’s expensive and the time duration is much shorter. It would prefer debt from one of the larger African banks instead of a hybrid-debt structure. The former would also be preferred in terms of the cost of capital.

On the equity side, the company remains open to discussions, whether it’s a corporate strategic stake or a strategic stake from a different source. The company is cognizant that these situations are common in business, and the best strategy is to take what it can get and restructure or refinance the debt once the cash starts flowing in.

Currently, the company is focused on securing debt and achieving a re-rate on pricing, effectively opening up opportunities for retail and institutional investors in Australia, leading to potential growth. Based on ASX’s AUD$0.20 minimum listing price, the point of rollback was projected at 3:1. Based on the AGM (Annual General Meeting) and EGM ((Extraordinary General Meeting), the company was at an AUD$0.085 - AUD$0.09 price. As both the AGM and EGM happened at once, it made sense to consolidate both meetings.

The company opted for a 3:1 rollback instead of 2:1 as it offers a better headroom. This ratio also rolls the shares back to 70 million an issue. By the end of this year, the company anticipates that close to half of its warrants will drop off. The company did not offer any additional benefits or options. This was a straightforward and transparent rollback that was done in order to move towards an ASX listing.

Targets 2022 and Beyond

Toubani Resources raised $5M in November 2021. The company has a significantly large resource along with a DFS (Definitive Feasibility Study) in place. It has a lot of easily-convertible ounces on the ground that is yet to be included in the resource. It has plans to convert an additional 200,000oz-300,000oz to the indicated category through a drill program. These ounces roughly translate to 84% reserves.

The additional ounces would provide optionality and flexibility to the demand plan and add 2 more years of 100,000oz production to the mine life. This would serve as an opportunity to conduct optimization exercises, resulting in a slight increase in yearly production. In the current scenario, the company finds itself in an inflexible position. It is looking to conduct targeting drilling in order to add ounces that have already been identified. Currently, the company has 285,000oz in the pit shell. It won’t need a lot of time and monetary resources to add these ounces to the existing resource.

Acquiring debt financing can take anywhere between 6-12 months. The company is looking to add value to the project during this time. A lot of the company’s shareholders are now pushing hard for a news flow, which can be easily managed by adding exploration ounces to the existing resource.

The company is focused on targeting drilling that is sensible from a short-term perspective. In a case where financial assistance is acquired in the next few months, the company would prioritize building the project.  In the meantime, the company is looking to add ounces to the resource. It has plans to commence construction within a year.

To find out more, go to the Toubani Resources website