When it comes to investing in gold mining stocks, there are many factors to take into account, especially in the small cap exploration sector which offers a high risk/reward profile for ambitious investors looking to generate substantial gains in their portfolio. This sector requires thorough, deep analysis and due diligence to reduce the risk of hefty losses. We are going to take a look at a very unique and well positioned company, Xtra-Gold Resources Corp. (“Xtra-Gold” or the “Company”) (TSX: XTG / OTCQB: XTGRF), to determine why the company could be one of the best opportunities in the small cap exploration sector right now.
Xtra-Gold pioneered the systematic exploration targeting the hard-rock gold sources of the Kibi Gold Belt in Ghana, West Africa, making their “Maiden Discovery” in 2012. This gold belt had never been subjected to a modern-day systematic exploration program prior to the Company’s attempts at uncovering the hard rock sources of its abundant alluvial gold. In fact, Xtra-Gold’s find represents the first ever mineral resource generated on a lode gold project in the Kibi Gold Belt. This belt is geologically analogous to the neighbouring Ashanti Gold Belt, which has produced over 130 million ounces of gold, making it one of the most prolific gold belts in the world, which bodes well for Xtra-Gold’s chances of further expanding the Maiden Resource and making the region’s next significant gold discovery. Ghana – A great place to mine Now, some investors may group Africa into a single basket and consider it “too risky”, thereby missing out on some of the best opportunities in the gold mining sector. Let’s begin with a closer look at Ghana to educate investors on how safe this jurisdiction really is. Ghana was formerly a British Colony, and known as the “Gold Coast”. The democratic country has maintained the British common law system, with English as the official language. They have also adopted a British mineral rights system, which protects the rights of the mining companies. Ghana is typically ranked as one of the most stable and politically safe countries in Africa and recently surpassed South Africa to become the continent’s predominant gold producer, to rank seventh world-wide, according to the World Gold Council (this from a country about one-third the size of Texas).
This is important because Xtra-Gold has a first mover’s advantage in a historically gold rich mining region. Xtra-Gold founders staked and acquired the ground to tie up the original concession in 2003, when gold was approximately $300 per ounce. The Company has since put together a significant land position of 226 square kilometers comprising 5 fully permitted mining leases. Having only extensively drilled approximately 1 square km of its total land position, Xtra-Gold has plenty of opportunity to expand the resource as the drilling steps out from the Maiden Discovery, which showed 278,000 oz’s of gold Indicated (3.38M tonnes @ 2.56 g/t) and another 147,000 oz’s Inferred in its technical report (NI 43-101 of 2012). Drilling is being completed “in house” with Xtra-Gold’s owned rigs, which brings us to yet another of this explorer’s advantages. The Company owns two diamond drill rigs which significantly reduces their drilling costs (by an estimated 80%), and allows them to aggressively drill and expedite the expansion of their resource. While Xtra-Gold’s immediate goal is to increase its Maiden Discovery to one million ounces of gold, they have identified six additional “drill-ready” targets that have the potential to take them to the two-million-ounce level.
Xtra-Gold Advantages The fact that Xtra-Gold has already drilled and made the original gold discovery is a significant milestone in itself, and for its shareholders the exciting part will be watching as the resource expands. We believe that Xtra-Gold has a huge advantage compared to its peers for the following reasons: ★ The Company has over US$7 million in cash and liquid assets with zero debt, as of June 30, 2020. Xtra-Gold has stated that its drilling program is fully financed for 2020 and 2021, using proceeds obtained from alluvial sub-contract mining operation that generates over US$5M annually. This is significant because Xtra-Gold now has the cash to fund future exploration drilling initiatives during this bull market without having to receive outside financing. ★ Xtra-Gold has a solid management team that has been with the Company from day one. All the key members of the team have stayed with the project since the IPO, which occurred over 10 years ago. This shows that management is confident in the project and the asset they are developing. Their experience and understanding of the jurisdiction in which they are operating is of great value. ★ The Company has a very low share count and a loyal shareholder base. With a limited number of shares outstanding at just under 47 million (and a modest 2.4 million options), Xtra-Gold is truly unique for a gold exploration company in a sector where peers commonly issue hundreds of millions of shares. The Company’s shareholders have experienced minimal dilution since their IPO. Founders, Management and Friends of the Company own over 50% of the securities/shares. A strong and loyal Management Team that has significant share ownership is one of the most important items for success for exploration gold companies. Management is fully aligned with shareholders’ interest and has considerable “skin in the game”. ★ Xtra-Gold’s unique sub-contract arrangement with local artisanal miners, termed “Community Mining” by the Company, has unlocked a significant amount of gold sales to fund operations. This alluvial gold washed down their gold ridge over thousands of years and settled into the flood plains below. So, while the Company’s exploration team is focused on discovering the hard-rock sources of the gold high up in the ridge, they partnered with the local miners who extract the alluvial gold. This successful Community Mining project is the only one of its kind that we have been able to identify in the exploration sector.
As the gold bull market rages on, we are very excited to uncover this unique company. Xtra-Gold is well capitalized and well positioned to take full advantage of gold prices hitting record highs. With the Maiden Discovery already completed, Xtra-Gold is now focused on aggressively expanding their resource. Cash in the bank, a steady stream of gold sales to fund operations and drill rigs already on the ground in one of the world’s fastest-growing gold jurisdictions could certainly make Xtra-Gold one of the best opportunities in the small cap exploration sector.