Disclosure: Loncor Gold Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Improving Investment Climate in the DRC
A U.S.-brokered peace accord and growing international cooperation are helping stabilize key mining regions in the DRC
Western-backed firms, including KoBold Metals, are committing over $1B to DRC projects, signaling growing investor confidence
The Democratic Republic of the Congo (DRC) is a key global supplier of critical minerals, including cobalt, copper, and gold. While the country continues to face challenges such as regional instability and infrastructure limitations, recent geopolitical, financial, and operational developments are enhancing its attractiveness to foreign investors.
Notable Developments Driving Investment Momentum:
We believe the combination of peace initiatives, infrastructure upgrades, and growing international interest is improving the investment landscape in the DRC. For a junior miner like Loncor, the most likely path to value realization is through acquisition by a larger, DRC-experienced operator.
Currently, the market appears to be valuing Loncor based on its ability to advance the Imbo project independently, raising concerns about operating in a complex environment. This likely contributes to LN trading well below intrinsic value, and sector multiples.
In our view, investor focus should shift toward the project's strong fundamentals and management’s ability to secure strategic partnerships, either through a joint venture or acquisition, supported by exploration progress.
Imbo Project
Located in the Ngayu gold belt of the northeastern DRC, 220 km from Barrick’s Kibali gold mine
Ngayu hosts Banded Ironstone Formation (BIF) gold deposits, which are typically large-tonnage
Should the project advance to production, management envisions hydro power as a viable source, which is a significant factor contributing to Kibali's low cash costs
The advanced-stage Imbo project hosts three open-pittable deposits (Adumbi, Kitenge, and Manzako), and multiple targets, along a 14 km long mineralized trend
These three deposits are 3 km from each other, and can likely be part of the same mine plan. Most of Imbo’s resources come from Adumbi. Adumbi holds a relatively high-grade/large open-pit resource
The Adumbi deposit has been drilled along 900 m strike, and 550 m downdip. The open-pit resource grade at Adumbi (3.7 Moz at 2.3 g/t Au) is comparable to that of Kibali’s open-pit and underground resources (16.9 Moz at 3.1 g/t Au)
A PEA completed in 2021 returned an AT-NPV5% of $1B, and a high AT-IRR of 29%, using $1,840/oz gold vs the current spot price of $3,295/oz. Annual production of 303 Koz, which would make it a mid-sized gold producer
Resource Expansion Drilling
Earlier this year, LN launched a resource expansion drill program totaling nine holes (11,000 m), targeting potential underground mineralization beneath the existing open-pit shell. Initial results have been encouraging, returning broad intercepts with high grades.
The Adumbi deep drilling program is currently ongoing
The first four holes have confirmed high grades, underscoring the potential for underground resource expansion. Notably, LADD029, the deepest hole drilled to date, intersected three zones totaling 66 m
Management has outlined an exploration target of 1.5 Moz grading 4.8 g/t below the Adumbi pit shell, between depths of 550 and 800 m, a target we believe is reasonable.
Financials
Subsequent to Q1-2025, LN raised C$11M. In-the-money options can bring in C$9M
FRC Projections and Valuation
Our DCF valuation has increased from C$2.00 to C$2.23/share, driven by our higher long-term gold price forecast of US$2,500/oz, compared to US$2,000/oz in our previous report
African gold juniors are trading at C$83/oz (previously C$68/oz). LN is trading at C$43/oz, a 48% discount
Applying C$83/oz to LN’s resources, we arrived at a comparables valuation of C$1.17/share (previously C$1.13/share). The increase reflects a higher sector average EV/oz, partially offset by share dilution from the recent financing
We are reiterating our BUY rating, and raising our fair value estimate from C$1.57/share to C$1.70/share (the average of our DCF and comparables valuations). The formation of a special committee to review an unsolicited offer, alongside the recent equity raise, underscores growing market interest in Loncor. With a strategically located, high-quality resource base in the DRC trading at a significant discount to peers, we believe Loncor has a promising project, especially as initial drilling highlights underground expansion potential.
Risks
We are maintaining our risk rating of 5 (Highly Speculative)
We believe the company is exposed to the following key risks:
