Bellevue Gold For Better Grades & Margins

This story features BELLEVUE GOLD LIMITED, and other companies. For more info SHARE ANALYSIS: BGL

At a time when brokers are increasing gold price forecasts, new Bellevue Gold research highlights significant upside from resource extensions, exploration, and a potential mill expansion.

-Analysts are positive on the outlook for Bellevue Gold
-Better grades and margins than mid-cap peers
-Upside from resource extensions and potential mill expansion
-UBS expects an A$4,000/oz gold price in the next two years

By Mark Woodruff

A structural shift is underway in the gold market, according to UBS, with the price range having moved higher on resilient physical demand and strong gold purchases by central banks. The current upward pricing trend is expected to continue due to macroeconomic uncertainty and geopolitical risks.

It seems but timely then Goldman Sachs has initiated coverage on mid-cap miner Bellevue Gold ((BGL)).

Compared to similar-sized peers, the initiating broker points to higher average grades and stronger margin generation at the high-grade underground Bellevue Gold project located northwest of Kalgoorlie in Western Australia.

Management is aiming to provide FY25 guidance to the market in July, and the analysts forecast a ramp-up to around 200koz per annum at a cost (AISC) of circa $1,450/oz, in line with the consensus expectation.

Since achieving first gold production last October and then full production, Goldmans assesses significant further upside for the project from resource extensions and exploration, along with an expansion of the mill.

So far, management has spent around -$620m on development and exploration since FY20.

Recent drilling highlighted assays with materially higher grades than current resources (from already above-peer gold grades), notes Goldmans, and potential for additional high-grade shoots.

Should the resource be extended by five years, the analysts see potential 20% upside to the current net asset value (NAV) estimate, which excludes any positive impact from long-term gold prices closing the gap with the spot price, as well any upside from the planned 1.5mtpa mill expansion.

A study is progressing for expansion at the mill to 1.5mtpa, due in the first half of FY25, whereby existing oversized equipment (crusher/proposed paste plant) helps mitigate capex requirements, and supports increased gold production of around 250koz, in a ramp-up through FY27.

Via financial modelling, the analysts can generate compelling internal rates of return (IRR) for this expansion under various gold price scenarios.

Following declaration of commercial production, and positive free cash flow (FCF) in the three months to April, second half guidance for 75-85koz appears on track to the broker.

At the time of Bellevue’s March quarter results, Canaccord Genuity highlighted sector-leading 14% free cash flow (FCF) yield forecasts for FY25 and FY26.

Gold price forecasts

Back in mid-June, Ord Minnett could see a value opportunity for gold equities, noting copper equities had outperformed gold counterparts by 29% so far in 2024, despite similar rises for the underlying commodities.

At the time, copper equities had outperformed the copper price by 21%, while there had been -8% underperformance by gold equities relative to the gold price.

A rising gold price is counter-intuitive to traditional indicators such as a strengthening US dollar, weaker treasury yields and a weak volatility index, explained the broker. It was felt gold buyers were looking forward and taking a view on the US dollar and geopolitical risk.

Just over a week ago, Macquarie raised its gold price forecasts across 2024-26 by 7%, 22% and 21%, respectively, to US$2,276/oz, US$2,425/oz, and US$2,200/oz.

A peak average gold price of US$2,500/oz is forecast for mid-2025, and the broker’s long-term price forecast increased by 9% to US$1,800/oz.

Despite diminished rate cut expectations, Macquarie felt the gold price had performed impressively, likely due to challenging fiscal outlooks for developed markets and stronger Chinese investor demand.

For Bellevue Gold, this broker’s forecasts across FY24-27 increased by 10%, 23%, 39% and 31%, respectively, and the target was raised to $2.10 from $2.00.

Despite these higher forecasts, the analysts noted FY25 guidance could disappoint, mainly due to higher costs, but Macquarie remains positive on the impact of the potential mill expansion.

A successful ramp-up of the Bellevue project remains important for the company’s near-term outlook as does any guidance following the declaration of commercial production, in the broker’s view.

The higher target price, combined with a recent pullback in the gold sector, prompted Macquarie to upgrade its rating for Bellevue to Outperform from Neutral.

While Ord Minnett believes the costs/capex outlooks for larger gold names will be higher-than-expected by consensus due to inflation, this broker is less concerned about smaller cap peers given their relative underperformance.

Ord Minnett currently has an Accumulate rating and $1.85 target for Bellevue Gold.

Ongoing macroeconomic uncertainty, geopolitical risks and increased allocations to gold are expected to push the price to US$2,800/oz or A$4,000/oz over the next two years, predicts UBS. This forecast (published in early-June) placed the broker around 37% above lagging consensus estimates.

Goldman Sachs’ upbeat outlook for Bellevue is not impacted by around 25% of medium-term gold sales being hedged at around A$2,700-2,900/oz.

UBS increased its 2025-27 gold price forecasts (significantly higher than Macquarie’s estimates) to US$2,700, US$2,775 and US$2,600/oz, respectively rises of 21%, 34% and 30%. The long-term real price was also raised by US$200/oz to US$1,950/oz.

While UBS analysts were sensitive to guidance risks for FY25 as gold companies were headed for the low end of FY24 expectations at the time, an around $700/oz lift in the Australian dollar forecast should more than outweigh any potential downside for share prices.

Aging asset bases across the ASX Gold sector and a general lack of exploration success suggest more potential M&A ahead as companies look to replenish pipelines and inventory and recycle projects, explained the broker.

Recent M&A examples include Newmont Corp (NEM) acquiring Newcrest Mining, Red5 ((RED)) combining with Silver Lake Resources ((SLR)), as well as Westgold Resources ((WGX) and King River Resources ((KRR)).

The average target price of three covering brokers monitored daily in the FNArena Database is $2.08 suggesting just over 13% upside to the current Bellevue Gold share price.

Ord Minnett, Macquarie, and UBS all have a Buy (or equivalent) rating.

Outside of daily monitoring, Goldman Sachs and Canaccord Genuity have ratings of Buy and Speculative Buy, respectively, and the same $2.20 target price for Bellevue Gold.

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