March 30, 2022/CSL Research

Thor Explorations Ltd (Thor) has embarked on a journey to become a leader in the commercial mining and production of gold in West Africa. Given the unprecedented success of its flagship Segilola project, the company has strongly positioned itself to build upon its first-mover advantage in an unexplored and emerging gold mining industry in Nigeria. Driven by its commendable management and strategic approach, Thor has built its operations to commercial scale in a short span, braving persistent headwinds from the ongoing pandemic.

Based on the latest operating update, the company is set to achieve its targeted gold production of 80,000-100,000 ounces (oz) in 2022. We believe this will move the company to the top position in Nigeria and help it focus on growing its exploration and development activities in other underexplored regions in West Africa. In this report, we review Nigeria’s mining industry and Thor’s position therein, with a deep dive into its project portfolio. We also explore the economic moat driving the company’s pursuit of growth.

Nigeria’s mining industry is likely to grow on the government’s focus on diversification

Nigeria is the largest economy by GDP and the most populous country in Africa. It is among the top 20 oil producers in the world, with the oil and gas sector representing around 85% of its exports. Higher dependence on oil makes Nigeria more vulnerable to economic shocks, so diversification is a logical step to pare reliance on oil. Mining, including mineral fuel, contributed around 6.19% to Nigeria’s GDP in 2021 (vs 7.13% in 2020). The wide range of solid domestic mineral resources is the new focus area of the Nigerian mining industry. The government’s latest National Development Plan (covering 2021-25) has set a target of a 3% contribution of total non-oil mining to GDP by 2025 vs 0.43% in 2020. Government’s backing and the focus on a wide range of solid domestic mineral resources is likely to augur well for the Nigerian mining industry.

Nigeria holds material unexplored mineral reserves, supporting Thor’s expansion plans

Nigeria has the 12th largest iron ore reserve in the world. Reserves of some minerals, such as lead, baryte, coal and bitumen, are specific to only Nigeria in SSA. These reserves represent an untapped opportunity for the nation to enrich its mining portfolio. While Nigeria has more gold reserves than Burkina Faso and the DRC, gold production has been the lowest in Sub-Saharan Africa (SSA), underscoring the dearth of large-scale production facilities in the country. This is corroborated by the fact that Nigeria’s annual gold production was less than 15% of Mali’s in 2019, despite their similar gold reserves. Nevertheless, the grade quality of gold found in Nigeria is one of the highest in SSA presenting a substantial growth opportunity, as it continues to remain in demand from the jewellery sector and commands the highest price worldwide. 

Thor has a first-mover advantage in a promising market…

Thor’s flagship Segilola project is positioned as one of West Africa’s lowest-cost, highest-grade gold producers, with first gold production achieved in July 2021. Thor is a first mover in Nigeria – an area with high potential that remains underexplored. Thor’s asset portfolio is diversified by jurisdiction and development stage. Currently, it holds c.915 sq. km of licences. Its management has several years of experience and strong record in leading exploration activities in Nigeria. Thor enjoys competitive advantage over peers in West Africa, as it has established itself as a low-cost producer (AISC* in Segilola is US$685/oz, one of the lowest in SSA, where average AISC is approximately US$740/oz). In our view, Thor has strengthened its roots in Nigeria by gaining a significant capacity advantage over potential competitors. It owns the only industrial scale processing plant on the gold-bearing Ilesha Schist Belt, which has an ore processing capacity of 715,000 tonnes per annum. It produced its first gold in July 2021 and is on track to reaching its targeted gold production levels of 80,000-100,000 oz in 2022. 

Providing an opportunity of significant upside potential

In our Base case, with a gold price assumption of US$1,600/oz, we expect Thor to generate a combined net asset value of US$380m using Sum of the Parts valuation, corresponding to a per share fair value of C$0.77. We outlined several scenarios to assess potential impact of change in gold prices on Thor’s share price. These scenarios assume US$200 per interval change in gold price and a 1 percentage point per interval change in weighted average cost of capital (WACC). Our best-case situation yields a fair value per share of C$1.42 at US$2,200 gold price and 10.4% WACC. On the other hand, worst case scenario indicates a fair value per share of C$0.55 at US$1,400 gold price and 14.4% WACC. Notably, considering current gold spot trade levels of well above US$1,900, potential fair value per share corresponds to C$1.14 at 14.4% WACC. 

*AISC – All-In Sustaining Costs

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