fat prophets article on bmo

FOR THOSE WHO DONT HAVE A SUBSCRIPTION THIS IS WHY YOU SHOULD THESE GUYS ARE RARELY WRONG MOST PICKS UP OVER 100%


BMA Gold (BMO)

In our previous Alert on BMA Gold earlier in the week, we asked Members to remain patient and take no action until we had spoken with company management with respect to the flagged reserve and operational downgrades at its Twin Hills Gold project in Queensland.

Accodingly, we spoke today with BMA Gold's Managing Director, Mark Wheatley. He had just spent the past 24 hours up on site in Queensland.

The good news for Members is that we do not by any means that think that the current setback is terminal for BMA, a view that was reinforced by our discussions with the company this morning.

First of all, BMA is in the fortunate position of having only a small debt position, allowing it flexibility with respect to refinancing. We understand the company will be meeting with its financier, CBA, next week, and in our view should be able to comfortably secure its future.

What this means is that even in the worst case scenario, if BMA decided to temporarily suspend mining operations, there is only a small debt position to service. The company could therefore focus its energies totally on exploration, with the goal of building its resource base to resume mining.

Examining the geological issues specifically, the company enjoyed good mining success at Area 1 at Twin Hills and therefore it was surprising that it encountered such difficulties in Area 2.

We understand the company will be assessing its options over the next week or so. This could include partly offsetting the predicted shortfall by bringing Area 3 into production earlier than expected, or stopping production altogether and concentrating on a comprehensive exploration program to boost reserves ahead of a resumption of mining.

Whilst the original news initially came as a surprise, the downgrade does reflect to some degree the recent industry-wide phenomena of downgrades at a host of underground mining projects. We have seen this in recent months at both Ballarat and Bendigo in Victoria.

The market should therefore appreciate that the definition and subsequent mining of high-grade/narrow-vein gold deposits therefore is not an easy task and involves a high degree of risk.

In the case of BMA Gold, we ignored the initial hype surrounding the stock, with our initial Buy recommendation coming last year when we believed all operational issues had been resolved, investment risks for Members had been minimised and share price downside was limited.

Our confidence was further reinforced with the appointment of Mark Wheatley as Managing Director, due to his conservative management style and strong operational background.

Unfortunately, the baggage that he inherited from previous management has taken longer to resolve than we had first imagined.

We reiterate that we introduced BMA Gold to our Members because of the tremendous upside at its emerging Twin Hills Gold Project in Queensland. Despite production issues, we believe this upside remains intact.

The company has employed world-renowned expert in epithermal gold deposits, Greg Corbett, as a consultant. We previously indicated that he has identified numerous targets for further evaluation that could host replicas of the high-grade 309 style of mineralization. There are at least four of these targets, all lying within a 1km radius of the 309 deposit.

The company is yet to properly test the depth and strike potential of the high-grade Area 2 resource. We therefore see a clear opportunity for BMA to add further high-grade ounces within the immediate vicinity of its current mining development.

Mark Wheatley has previously flagged these step-out targets as an immediate area of focus in the company's upcoming drilling programs. The company is also conducting assessment work on its Area 3 open-pittable resource, comprising metallurgical test work and open pit design work.

We believe that all of the bad news is already factored into the BMA Gold share price and while some may feel the tempation to exit the stock, we would encourage Members to remain patient. We will provide further updates to our Members as they arrive.