The company also raised $26.5 million from a share placement during the quarter which saw the world’s largest resources fund, Blackrock, emerge with a 10% stake in Bellevue.
Canaccord Genuity’s $1.30 per share valuation remains unchanged for Bellevue as it continues to screen as the most attractive and well-funded (cash $38 million) gold development story in Canaccord’s coverage.
Following is an extract from Canaccord’s research update:
Maiden Resource at Deacon a highlight in a busy MarQ’20. BGL increased its total Inferred Resource to 6.1Mt at 11.3g/t for 2.2oz, with the addition of a maiden Resource at the recently discovered Deacon Lode of 1Mt at 12.3g/t for 410koz. The maiden Deacon Resource easily eclipsed our estimate of 250-350koz at 8-10g/t, and with drill hits outside the current Resource part of the ongoing infill drilling program, we believe there is good scope for further Resource growth during 2020. The current Deacon Resource covers the central 900m of a ~2km mineralised strike length, with the mineralisation style, shear geometry, scale and host lithology analogous to the nearby Bellevue Mine (which historically produced ~800koz at 15 g/t gold). As a reminder, Deacon sits ~400m to the east of the Bellevue mine, and was only discovered in 2H 2019. Current drilling is aiming to tighten spacing around a number of drill holes outside the existing Resource to the north (including 3m at 12g/t, 1m at 12.6g/t, 4.5m at 7g/t, 0.4m at 26g/t), which in our view could double the strike length of the defined mineralisation. Down-hole EM continues to be an effective tool to guide drill targeting, and with a significant conductor 200m along strike to the south, and another 250m to the north, Deacon is rapidly emerging as having ~1Moz potential, in our view. Given the growing critical mass of the orebody (and favourable geometry for mining), Deacon will likely become an important part of a production scenario for BGL and a key component of the Economic Studies. We also note that Deacon only sits ~400m from existing underground infrastructure at Bellevue (currently being de-watered), and access via a development drive (assuming a modest gradient) should cost <$3m based on current market rates.
Maiden Indicated Resource expected late in JunQ’20. BGL also reiterated that it remains on track to release a maiden Indicated Resource on the Tribune, Viago and Bellevue lodes in the month of June, which is an important catalyst for the company, in our view. During MarQ’20, BGL completed its 94,000m diamond drilling infill program, and we see good scope for a maiden Indicated Resource of 400-500koz at 8-11g/t, with grade likely to depend on the ratio of Tribune (8g/t, shallower) and Viago (16g/t, deeper) included in the update. Recent infill results continue to strongly support BGL’s geological model, which predicts gently plunging, high-grade shoots within the broader mineralised envelops, an interpretation consistent with the shoots that were mined at the Bellevue underground mine.
BGL expects Mining Studies to get underway in the second half. The Indicated Resource will form the basis of initial Mining Studies, which should begin in earnest in 2H 2020. Interestingly, BGL has flagged that initial desktop Studies have demonstrated the potential for open pits at Bellevue and Tribune (further drilling required) and that these are likely to form part of the project’s Economic Study. As a reminder, we model the project on a 100% underground basis (supporting ~150kozpa at AISC of A$1,000/ oz) and see the potential for high grade open cut ore as a valuable development. In our view, high grade open pit ore has the potential to improve the project payback period, introduces flexibility during the mine start-up phase and could improve our ounce and cost profile assumptions. BGL is continuing to bolster its team, with a number of key appointments (COO, Corporate Development Officer, People and Culture Manager) made recently as the focus sharpens on project development. On account of the growing scale of the project, we have pushed out our previously assumed first production assumption by one quarter (now SepQ'22), which is reflected in our forecast earnings changes.
Valuation and recommendation. Our A$1.30/sh valuation (unchanged) is based on a DCF analysis (NPV10%) for the Bellevue gold project, plus nominal exploration value, diluted for future assumed project equity financing and net of corporate adjustments. In our view, BGL continues to screen as the most attractive and well funded (cash A$38m) gold development story in our coverage, and we retain a SPEC BUY recommendation.