Bellevue Gold For Better Grades & Margins

Commodities | Jul 08 2024

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 buttimely 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.


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