Bellevue Gold Ltd. (BGL.AX): Equity raise supports accelerated expansion/development; ~10% FCF yield deferred to FY27E; Buy

26 July 2024 | 8:41AM AEST

BGL announced an underwritten institutional placement to raise A$150mn, and a non-underwritten SPP (up to A$25mn) at an offer price of A$1.55/sh (~15% discount), which BGL expects to unlock cash flows/ balance sheet flexibility (with some early debt repayment) to self-fund the new 5 Year Growth Plan.

BGL's new 5 Year Growth Plan incorporates an accelerated/larger expansion vs. prior expectations, with processing capacity to grow from 1.0Mtpa to ~1.6Mtpa (was 1.5Mtpa) by FY27 through low capital cost upgrades to the current plant (A$40mn; below GSe), driving gold production to ~250kozpa from FY28E with AISC of ~A$1,500-1,600/oz. While the FY25 production guidance of 165-180koz was below GSe/VA Consensus (~190-200koz), resulting in higher AISC (A$1,750-1,850/oz; GSe ~A$1,800/oz on ~A$130/t mining and ~A$66/t processing costs), BGL's gold production profile was largely in line with our prior estimates.

Development and infrastructure capex was above GSe at ~A$270mn over FY25-27E on the accelerated development of decline in Deacon North (with an additional growth jumbo), Viago and Tribune and underground infrastructure in FY25 allowing an increase in mining fronts from 5 to 7 by FY26 (BGL noted a paste plant is not in the medium-term outlook, with the mine performing above expectations). The development spend is also expected to support exploration, with a restart of step-out exploration and development of 3 exploration drill drives.

In addition to modest resource/reserve upgrades, BGL expects this to support an exploration target of 1.5-2.5Moz (4-10Mt @ 8-10g/t), which could increase the gold resource and mine life ~40-80% and bring BGL's resource valuation closer to peers (see Exhibit 6). We previously noted a 5-year resource extension adds ~25% to our valuation under a 1.5Mtpa expansion scenario, where the larger expansion has increased this sensitivity to mine life extension to ~30% at our US$1,800/oz LT gold price (from 2028; real $ 2024).

Our 12m PT is down to A$1.85/sh, where while near-term FCF yields are impacted by the accelerated development spend (though we still expect rapid deleveraging to net cash in FY25E), we see these returning to double digit by FY27E, and remaining attractive vs. peers. As a scenario, the raise price implies a P/NAV of ~1x and ~US$1,780/oz LT gold (peer average ~1.1x NAV and ~US$1,910/oz), with significant leverage to resource/LOM extension we remain Buy.

Key takeaways

BGL announced an underwritten institutional placement to raise A$150mn, and a non-underwritten Share Purchase Plan (SPP) to raise up to A$25mn (before costs; SPP not in GSe as not underwritten/yet to close), issuing ~97mn new shares under the placement (representing 8.2% of existing shares on issue; + up to ~16mn under the SPP) at an offer price of A$1.55/sh (~15% discount to the last traded price of A$1.83/sh ~15% discount to the 5-day VWAP of A$1.81/sh). BGL expects to be in a pro-forma net cash position post-raise with ~A$100mn bank debt (we expect a return to net cash by end FY25 including the accelerated growth spend; see below), including a proposed debt repayment of A$120mn (back ended principal payment scheduled in 2027; once debt amendments fully documented expected by Oct-24). BGL notes the raise/repayment unlocks free cash flows to be applied to self-funding the 5 Year Growth Plan (see below) and provides enhanced balance sheet flexibility (certain debt covenants waived for a period to permit the immediate commencement of growth capital expenditure prior to receive necessary approvals; no change to hedge book).

• 5 year growth plan: BGL outlined their medium-term growth plan, with an accelerated/larger expansion vs. prior expectations. BGL now expects processing capacity to grow from 1.0Mtpa to ~1.6Mtpa (was 1.5Mtpa) by FY27 through low capital cost upgrades to the current plant (A$40mn; below GSe; supported by an increase in underground ore movement from ~1Mtpa in FY25 to 1.6Mtpa in FY27), driving gold production to ~250kozpa from FY28E and lowering AISC to ~A$1,500-1,600/oz.

  While FY25 production guidance of 165-180koz was below GSe/VA Consensus (~190-200koz), resulting in higher AISC (A$1,750-1,850/oz; GSe ~A$1,800/oz on ~A$130/t mining and ~A$66/t processing costs), we expect this is in part due to the accelerated expansion timing along with bedding down production after 3 quarters of producing (BGL expects to be at a ~200kozpa run rate by 4Q FY25; GSe below).

  Beyond FY25, the larger expansion offsets the lower mine grade from supplementary material, keeping gold production largely in line with our prior estimates (see Exhibit 9), though the increased material movements and expansion works contribute to higher cash costs and AISC through ramp up to 1.6Mtpa (above prior GSe; see Exhibit 10). We note the FCF outlook remains compelling, at a double-digit FCF yield from ~FY27E, where we still expect rapid deleveraging to net cash in FY25E.

  • Projects/Capex:

    • 1.6Mtpa plant expansion spend of A$40mn below GSe (was ~A$75mn for 1.5Mtpa expansion), where an initial Stage 1 expansion to 1.35Mtpa in FY25 through gravity screen upgrade and additional gravity concentrator (A$12mn), with Stage 2 an additional expansion to 1.6Mtpa in FY27 through extra ball mill, 3x CIL tanks and additional thickener (A$28mn). BGL also expects completion of initial tailings dam works in FY25 (~A$7mn). Capital cost estimates for the expansion of the processing plant were provided by Maca Interquip Mintrex to a scoping study level of detail (geotechnical analyses to a Feasibility Study level of detail).

    • Development and infrastructure spend above GSe at A$126mn/A$82mn/A$65mn over FY25-27E (~A$270mn) on the accelerated development of decline in Deacon North (with an additional growth jumbo for 18mths from 2H FY25), Viago and Tribune and underground infrastructure in FY25 allowing an increase in mining fronts from 5 to 7 by FY26, along with ventilation upgrades to be completed Aug-24 (including associated raiseboring in FY25). BGL expects the increased flexibility and efficiency of mining fleet will enable the ramp up of mining volumes and decrease in unit costs. BGL noted a paste plant is not in the medium-term outlook (which we defer from our capex estimates), with the mine performing above expectations, though retains optionality longer-term (with a build time of ~10 months).

    • Exploration: BGL also expects to restart step-out exploration (not occurred since ~Jun-22), spending A$30mn in FY25/26E and A$15mn in FY27E, with development of 3 exploration drill drives including access to ore and a Southern drill drive (from the completed Tribune boxcut) to access Southern Belle toward the end of the decade. Recent UG development allows aggressive exploration underneath the current resource and supporting the new exploration target of 1.5-2.5Moz (4-10Mt @ 8-10g/t; based on the southern plunge extent of the Bellevue Lode system to 800m of depth).

• Resource update: BGL updated the resource (up to 3.2Moz from 3.1Moz) and reserve (now 1.5Moz from 1.3Moz; including 2.5Mt @ 2.2 g/t gold supplementary material), noting there is only ~10% inferred material in the 5 year plan (~5% in next 3 years).

  BGL noted mining consistently targets core production of 1-1.2Mtpa of high-grade Reserve (~6g/t). Medium & low-grade ore accessed from the same infrastructure will provide additional feed to fill increased 1.6Mtpa mill capacity. The recent UG development also allows aggressive exploration underneath the current resource, supporting the new exploration target of 1.5-2.5Moz which could increase the gold resource and mine life ~40-80% and bring BGL's resource valuation closer to peers (see Exhibit 6).

  We previously noted a 5-year resource extension adds ~25% to our valuation under a 1.5Mtpa expansion scenario, where the now larger expansion has increased this sensitivity to mine life extension to ~30% at our US$1,800/oz LT gold price (from 2028; real $ 2024).