Fox-Davies Capital says Guinea bauxite acquisition could transform Alecto Minerals
The note from FD Capital analyst Peter Rose, who currently has a 'speculative buy' recommendation on the stock, followed the acquisition of the owner of the bauxite licence Forward Africa Resources (FAR) by Alecto in February.
The area could potentially host a bauxite resource of over 500 million tonnes and is contiguous to the 3.1 million tonne per annum Kindia mine.
Rose drew attention to the fact that the FAR licence has existing infrastructure including a railway line, roads and power, saying that in the case with bauxite project, it is as important as the resource.
In addition, there is also expansion underway at the port of Conakry to provide additional stockpiling and shipping capacity.
The upgrade is expected to be completed in 2017.
This infrastructure is government owned and the authorities have already assured Alecto that it will be available to new bauxite producers.
Under the terms of the deal, Alecto has the right to buy 51 percent for FAR in exchange for a 15.2 percent stake in the company upon the completion of a 90-day due diligence period and obtain full ownership within 18 months by issuing a further 14.785 percent of its share capital.
This means that Alecto could acquire the 500 Mt resource for £898,500, which Rose said was very cheap.
"The deal is not without potential problems, with corruption in Guinea being endemic at almost every level of society, and keeping operating costs down will be difficult," said Rose.
"However we believe the deal could transform Alecto as a company in a short amount of time."
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