Blackham Resources Waltzes Matilda Down The Aisle

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-Positive sentiment to drive re-rating
-Measures up against peers
-Sulphide option down the track
 

By Eva Brocklehurst

Blackham Resources ((BLK)) is about to waltz its Matilda project down the aisle. The company is set be Australia's next 100,000 ozs per annum gold producer, in Canaccord Genuity's opinion, as the Matilda project should come on line in the second half of 2016.

Positive sentiment supports Australia’s gold sector and should drive a re-rating for the share price, the broker maintains, as Blackham transforms into a producer and cash starts to flow. A definitive feasibility study is due shortly and a development decision should be made soon thereafter.

The company's holding in the Wiluna district of Western Australia benefits from existing infrastructure which allows for low capital expenditure and a quick transition to production. Canaccord Genuity initiates coverage with a Speculative Buy recommendation and 75c target.

The stock measures up well against peers across a number of metrics, the broker maintains. With the exception of Dacian Gold ((DCN)) and Gold Road ((GOR)), Blackham will be only other 100,000 ozs per annum producer likely to develop its mine as a standalone in the next two years. Most of the company's peers are assuming smaller scale toll treating, heap leach or staged developments.

Initially, the broker assumes the project is developed as a 1.3mtpa oxide and free milling gold operation from the Golden Age underground and Galaxy open pit. Based on current resources this is expected be sustained for three years.

This is considered a unique approach as the previous owners typically viewed the higher grade refractory sulphide ores as the primary ore supply. Canaccord Genuity believes the company's approach is a logical way to establish cash flow and maintain its options for a sulphide resource down the track.

At this stage Canaccord Genuity models two years of production for the sulphide resource base – 3.3m ozs out of the total resource base of 4.7m ozs – but highlights the potential for extensions.

Once cash flow is maintained the broker expects the company will ramp up exploration activity on many of the prospects across the holding. Success is expected, based on the high grade quartz reef material.

An engineering review of the existing Wiluna plant estimates refurbishment capital at $17m. A figure of $11m has been allocated for pre-production mining and working capital. The company has finalised a $38.5m funding package which should allow it to be covered for the capital required to get to production.

Blackham and Orion Mine Finance have entered into an offtake agreement whereby Orion will purchase the gold from Matilda. Blackham will sell 50 of the the gold produced from Matilda until it has delivered 250,000 ozs to Orion.
 

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