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CRITERION
Tim Boreham
November 07, 2006
BMA Gold (BMO) $0.24
HAVING done OK so far with last week's tips on alternative Victorian gold plays Morning Star and Goldstar, Criterion will push his luck by backing this junior Queensland producer.
It's Cup Day after all and we're in the mood for a punt one not involving a hopelessly handicapped equine lottery.

BMA shares are languishing around their lows, yet the company is doing most things right since reporting disappointing June quarter output (2400 ounces) from its Twin Hills underground mine west of Mackay.

"We are a good little company," says BMA chief Mark Wheatley. "Our problems are behind us and we had a good quarter."

Wheatley admits that given the recent hiccups in the underground gold sector, everyone is suffering. Perhaps we should call it the Todd and Brant Factor, or the Curse of (serial downgrader and capital raiser) Bendigo Mining.

BMA's September quarter production was a more creditable 11,500oz, derived at a respectable average grade of 14.4g a tonne.

BMA has targeted full-year production of 20,000-22,000oz this calendar year, rising to a respectable 70,000oz in 2007.

At this stage, BMA boasts reserves of 133,000oz of gold and 69,000oz of silver at its exotically monikered Mine 309, with inferred resources of 319,000oz of gold and 381,000oz of silver.

To that we hopefully can add 102,000oz of indicated and inferred resources at its Lone Sister deposit, 7km away, but more work needs to be done.

To date BMA's production at Mine 309 has derived from a shallower deposit, just as prosaically dubbed Area One.

But that's almost mined out, so output will derive from the deeper, but higher grade, Area Two.

A third open pit resource you guessed it, Area Three is an open pit deposit also accessible from BMA's spiralling underground shaft, which intersects all three areas.

Area Three contains a further 92,000oz at lower grades and management is taking a suck-it-and-see attitude to its mineability.

BMA reported September quarter production cash costs of $480oz, but Wheatley expects the figure to be more like $350/oz next year, as volumes improve.

The unhedged BMA achieved selling costs of $819/oz in the September quarter, so there's a fair bit of headroom. The resurging gold price should boost confidence.

Broker Intersuisse's resources analyst, Peter Arden, says BMA is moved to a "very interesting point" of its brief existence (the company listed in 2004 from the shell of Australian Silicone).

"They have done everything they said they would do," he says. "They have a sensible strategy but the market is a bit wary of small one-mine operations until they prove themselves."

Arden acknowledges investors are down on the sector generally, but says relatively small underground mines will be a feature of the industry in the next few years.

"With the gold price likely to stay firm over time, these operations will become very rewarding," Arden says.

BMA in the September quarter reported net positive cash flow of $1.62 million after spending $700,000 on exploration. It had cash reserves of $4 million.

"In 2007 we would hope to generate at least $20 million to $30 million (of cash flow)," Wheatley says.

BMA raised $12 million in a share placement earlier this year and Wheatley says the company has "no intention of raising any more equity capital in the foreseeable future".

Unusually, BMA has obtained an $8 million loan facility from the Commonwealth Bank, without being required to forward sell its gold as security.

Wheatley is clear about BMA's acquisition intentions: it wants to buy something. While Wheatley has a uranium background he was CEO of soon-to-be-producing uranium miner SRX BMA will stick to gold.

"Twin Hills is a little project and we very much want to be part of any industry consolidation," he says.

"If you're bigger you have the chance to be attractive to more people and you become more relevant."

Criterion is happy to rate BMA a SPECULATIVE BUY, especially as the stock's trading around 12-month lows.

At the very least we've heard more outlandish tips in the Flemington car park.