broker note

Black Mountain Resources (ASX:BMZ)

On Friday, Black Mountain Resources announced its initial results from the 13 hole maiden drill programme at its New Departure Silver Project in Montana, US. The results confirmed a down-dip extension of historic workings with assays of up to 365 grams per tonne (g/t) silver.

The drilling has also indicated a potential strike length of 670m. Further drill testing of the extension is scheduled for Q2 2013 and has a potential to substantially extend the current mine plan.

The mine development is also on-going with refurbishment almost complete and new decline extension scheduled to begin at the end of January to access historic workings. The initial assay results include width of 3m at 365.47 g/t silver, 0.11g/t gold, 0.35% lead, 0.46% zinc and 0.6% copper at hole 5. The results also indicated 3m at 162.36 g/t silver, 0.22 g/t gold, 0.2% lead and 0.28% zinc at hole 3.

Development work at New Departure is also progressing well with widening of the Laczay portal and tunnel almost complete. The steel set structure will be set in the portal entry this week before a 335m decline is driven to access historic workings below the historic blocks known as the Main Zone. This will also permit access to the Quien Sabbe Zones and the Bonanza Zones by way of secondary drifts off the main decline. The stock jumped 10.9% on Friday.

Our view: This latest announcement from Black Mountain confirming a down-dip extension to historic workings and the identification of a strike length underpins the management’s belief that the New Departure project would soon be able of start producing silver. This is the first time a drilling campaign has been undertaken at the site, and these initial high grade silver intercepts of up to 365 g/t is a strong indicator of the significant value the project brings to Black Mountain.

The New Departure contains a non JORC-compliant Resource of 2.5 million ounces (oz) of silver at over 15 oz per tonne with Black Mountain targeting an initial production of 250 tonnes per day, grading 600 grams to 800 grams per tonne. Furthermore, the company recently confirmed high grade silver zones as well as uncovered new mineralisation structure at its Conjecture Silver Project in Idaho. Grades of up to 715 grams per tonne (g/t) silver and silver equivalent were seen from the maiden drilling activity.

We believe the current stock price does not reflect the intrinsic value inherent in the New Departure and the Conjecture Silver Project and we are optimistic that Black Mountain will offer compelling value to investors given its near-term production profile as well as exploration upside. We maintain a Speculative Buy rating to the stock.

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