BMA Gold has announced high grade drilling results from two holes that appear to represent new zones of mineralisation at its Twin Hills gold operations in central eastern Queensland. At the same time the September quarter is shaping up as an improved production period, with the operations producing a higher proportion of stope ore from mining at Area 1 of the 309 deposit. However, the operations will not achieve target ore production levels on a sustainable basis until early to mid 2007, when development of the Area 2 zone is more advanced.
“BMA Gold appears to have discovered new, high grade zones of economic mineralisation at its Twin Hills operations. These discoveries should increase reserves to a level that will allow enhanced long term planning for the operation, particularly in relation to determining future treatment plant options.”
New Discoveries Exploration drilling around the margins of the 309 deposit appears to have resulted in the discovery of two new zones of mineralisation. Initial interpretation by the company is that the first hole is likely to represent an offset extension of the Area 1 mineralisation and the second may represent a high grade feeder zone for the Area 3 mineralisation.
The relevant drill results are as follows:
THRCD 894 – 33m at 5.7g/t gold from 132m, including 18m at 9.9g/t (interpreted as an offset extension of Area 1) THRCD 895 – 5m at 6.0g/t gold from 145m (interpreted as an offset extension of Area 1), plus 5m at 14.3g/t gold from 229m (interpreted as a possible feeder zone for the relatively shallow Area 3 mineralisation that is being assessed as a possible open cut mine). The holes have been drilled as part of an ongoing exploration program that is testing an east-west trending zone of gold/ar senic anomalism. This anomaly had been outlined from past soil sampling programs, but had received negligible previous drilling.
Unfortunately, we anticipate slow and steady ongoing newsflow with only one surface rig available on site for the further drilling and each hole taking several weeks to complete. The company also has one underground rig operating at the moment, although it is currently focused on delineating the margins of the Area 2 deposit ahead of mine development.
The company has also provided a cross-section (see below) showing the proximity of the new mineralisation in THRCD 894 to the Area 1 deposit. This highlights that the zone is around 120m below surface and some 40m to 120m east of the existing workings in Area 1 (which are currently at 110m depth). Accordingly, it should be relatively simple to develop the new zone from the existing decline, assuming that the company can outline a significant resource.
Last month the company released a relatively disappointing production result for the June quarter. Ore mined was only 13.5kt of predominantly development ore and ore treated was a modest 9.7kt at 15.2g/t for gold production of 2,399oz. Total production to date has been ore milled of 14.7kt at 16.1g/t for 4,658oz of gold production, with a further 2,457oz of gold in circuit and some 4,398oz in stockpiles at +30g/t.
Essentially, the company is several months behind schedule in its development activity and this has resulted in downgraded forecasts of 20 to 25koz gold for 2006, rising to 70koz in 2007. Cash operating costs have not been stated, but are forecast to reach $350/oz in the second half of 2007 once steady state production levels are achieved. Gold production is unhedged and the company is achieving positive operational cash flow.
The underperformance of mining development largely reflects a slow rate of advance in intermittent areas of poor ground and the associated need for additional ground support and shotcreting. This issue has been addressed by a re-design of the decline within a competent, silicified breccia unit, as well as the introduction of a second jumbo, loader and an underground haul truck to accelerate development and mining activity. This will create the potential to mine up to 150,000tpa by the end of the March quarter.
In the interim, production is performing well while stope ore is being produced from the relatively small Area 1 zone. This zone will be mined out by the end of October and production will taper off until Area 2 is ramped up to full production during the March quarter.
A significant issue for the company is deciding the preferred long term treatment option for the project. Currently high grade ore is hauled 280km north to the Rishton treatment plant where BMA has the right to mill its ore until April 2008. However, once mining of the lower grade Lone Sister deposit commences this becomes a less attractive option.
Assessment of a continuation of treatment at Rishton (which has significant spare capacity) compared to a dedicated plant at the 309 minesite is underway. A decision is required in the March quarter 2007 if construction of a new plant is the preferred option (in order to allow reasonable construction time). There may also be potential to negotiate with other tenement holders in the district to create a more regional approach to exploring for and treating ore.
Discussion and Recommendation The BMA Gold share price is currently being influenced by two opposing forces; exciting exploration success and disappointing delays in the mining schedule. In addition it is facing critical decisions in relation to its future treatment plans.
Using short term valuation and earnings measures the company represents good value relative to its peers, although this value is not currently being recognised by investors due to the uncertainties of longer term operating plans. In this regard increasing the mine life and scale of operations are critical and the recent exploration efforts are very encouraging. Accordingly, Stock Resource reaffirms BMA Gold as a Buy around 27.5 cents for Members with no current exposure.
Capital Structure Stock Resource’s current estimate of the capital structure is as follows:
Market Valuation Issued Shares (m) Share Price (A$) Market Cap (A$m) Fully paid shares 243.30 $0.275 $66.9 Options (in the money) 7.35 $0.275 $2.0 Cash from options $2.1 Diluted Market Cap $66.8 Cash $3.4 Debt $0.2 Enterprise value $63.6
While BMA Gold represents a high risk investment, this is partially mitigated by the fact that development has been funded via equity rather than debt.
Disclosure: the Author holds shares in BMA Gold
BMO Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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