PRICE TARGET: $2.15 Bellevue Gold Ltd. (BGL.AX): 4Q24 broadly in line; FY25/multi-year guidance expected into site visit; Buy on FCF yield/accretive expansion
15 July 2024 | 3:16PM AEST
BGL reported gold production of ~43koz, in line with 2H guidance though slightly below GSe/Visible Alpha Consensus on lower mill rates as the production ramp up stabilises (commercial production declared early May). FY25/multi-year production and cost guidance is set to be released later this month (likely around the site visit on 31st July), with BGL forecasting recoveries to improve as a more consistent stockpile blend grade is maintained (following higher stoping/mine grades in the quarter), where we factor in production/AISC of 192koz/~A$1,515/oz, respectively.
The expansion study continues, where BGL target an increase in the current 1Mtpa nameplate capacity of the processing plant to >1.5Mtpa (was ~1.5Mtpa), with the study emphasising low capital intensity growth. We note existing oversized equipment (crusher/proposed paste plant) helps mitigate capex requirements, supporting increased gold production of ~250koz (GSe ramp up through FY27E), with a highly compelling IRR under various gold price scenarios (see our initiation for scenario details). Drilling to follow up the potential for another six high-grade shoots previously identified in broadly spaced drilling across the Deacon Main Lode area is also ongoing in 1H FY25.
BGL's liquidity improved to A$76mn at 30 June (incl. gold on hand), up from A$40mn in Mar-24, with net debt of ~A$160mn (excl. gold on hand), where we see c. 10% FCF yields (including any expansion spend) supporting rapid deleveraging with net cash by the end of FY25E on our estimates.
We rate BGL a Buy, where low cost expansions support production upside. On valuation, while now trading broadly in line with peers at our LT gold price of US$1,800/oz (peer average ~1.1x NAV and ~US$1,900/oz), near-term FCF yields of c. 10% in FY25/26 remain attractive vs. peers (despite ~25% of medium-term gold sales being hedged at ~A$2,700-2,900/oz). We note mine optionality supports further exploration upside, where a 5-year resource extension adds ~A$0.4bn/A$0.5bn (~20%/25%) to our valuation under a 1.2Mtpa and 1.5Mtpa processing scenario, respectively, for which we capture some upside in our nominal value.
4Q FY24 key figures
Exhibit 1 : BGL 4Q FY24 operating result vs. GSe & Visible Alpha Consensus Data, and FY25 guidance preview
Source: Company data, Goldman Sachs Global Investment Research, Visible Alpha Consensus Data EPS/NAV changes and Investment thesis
Our FY24-26 EPS change by -5%/-3%/-1% on the result, with lower cash on sales timing and capex, where we also modestly temper our near-term ramp up rates. Our NAV is down <1% to A$1.73/sh (from A$1.74/sh) on the above, and our 12m PT is down 2% to A$2.15/sh (from A$2.20/sh).
We rate BGL a Buy on:
Valuation: Relative to peers, BGL remains relatively underappreciated in our view, where while now trading broadly in line with peers at our LT gold price of US$1,800/oz (peer average ~1.1x NAV and ~US$1,900/oz), near-term FCF yields of c. 10% in FY25/26 remain attractive vs. peers and support upside to the outlook for possible future capital returns (despite ~25% of medium-term gold sales being hedged at ~A$2,700-2,900/oz). We note a 5-year resource extension adds ~A$0.4bn/A$0.5bn (~20%/25%) to our valuation under a 1.2Mtpa and 1.5Mtpa processing scenario respectively, for which we capture some upside in our nominal value.
Low cost expansions support production upside: BGL notes that the mill/processing is now consistently operating at 1Mtpa, though with a proven capability of 1.2Mtpa (for which no further capital outlay is expected), where we factor in a ramp up to a ~1.2Mtpa run rate by the end of FY25. While near-term operations are likely to be optimised at the ~1-1.2Mtpa rate, a scoping study has commenced for expansion to >1.5Mtpa (study completion expected 1HFY25). We note the crusher is already oversized at 1.7Mtpa, as appears the proposed paste plant, helping to mitigate the scale of capex outlay to support an expansion, with a further ~A$75mn for additional mill/supporting infrastructure (GSe on comparable project benchmarking) through FY26E supporting expansion to 1.5Mtp and gold production of ~250koz (ramp up through FY27E), with a highly compelling IRR under various gold price scenarios (see our initiation for scenario details).
Mine optionality supports further exploration upside: We expect significant underground mine investment to-date de-risks ore access and opens up new areas for expansion/further exploration, with several faces now open (rather than drilling from the surface), while the addition of a paste plant may improve existing resource recovery. BGL's most recent drilling highlighted assays with significantly higher grades than current resources (from already above peer gold grades), and potential for additional high-grade shoots. On our estimates, a prolonged mine life from resource extension could add ~A$430mn/~20% to our NAV from a 5-year mine extension (excluding a 1.5Mtpa mill expansion) at our ~US$1,800/oz LT gold price from CY28 (real $ 2024), with further upside if LT prices are closer to spot.
Exhibit 2 : BGL operating and financial summary
Source: Company data, Goldman Sachs Global Investment Research EPS and NAV changes, key investment risks
Our FY24-26 EPS change by -5%/-3%/-1% on the result, with lower cash on sales timing and capex, where we also modestly temper our near-term ramp up rates.
Our NAV is down <1% to A$1.73/sh (from A$1.74/sh) on the above, and our 12m PT is down 2% to A$2.15/sh(from A$2.20/sh).
Our 12m PT is derived on a blend of fundamental value (85% weighting) comprising 50:50 NAV:NTM EBITDA (with a target multiple of 7.0x unchanged) and an M&A value (15% weighting, based on 1.3x NAV).
Exhibit 3 : BGL PT, NAV and earnings revisions
Source: Goldman Sachs Global Investment Research Risks: Operating risk; cost inflation, commodity prices; macro risks; construction and commissioning risk; growth, returns and M&A. Investment thesis - Bellevue Gold
BGL is a gold mining company, operating the underground Bellevue Gold Mine in Western Australia (through wholly owned subsidiary, Golden Spur Resources). The project is adjacent to the Goldfields Highway that passes through the tenements to the west of the historic Bellevue Mine (~40km north of Leinster), and is ramping up to full production since achieving its first gold production in Oct-23, having spent ~A$620mn on development and exploration since FY20.
We rate BGL a Buy on: (1) Valuation, where BGL remains relatively underappreciated in our view, where while now trading broadly in line with peers, near-term FCF yields remain attractive and supporting upside to the outlook for possible future capital returns; (2) Compelling expansion potential, where BGL has proven capability to grow processing capacity 20% to 1.2Mtpa (no further capital expected), with a study in progress for expansion to 1.5Mtpa with existing oversized equipment (crusher/proposed paste plant) mitigating capex requirements to support gold production of ~250koz, with highly a compelling IRR; (3) Significant mine optionality from investment to-date de-risks ore access/exploration, where a prolonged mine life from resource extension could add materially to our NAV.
