This is the reason why I am invested in BSM and the reason why I think shareholders should take up their rights entitlements.
HELLYER TAILINGS
BSM has inherited a large tailings resource of 9.5mt grading at 2.6 g/t Au and 104 g/t Ag (5.01 g/t Au eq.). Being VMS ore this is a sulphide gold and is held within the pyrite of the tailings ore.
When Aberfoyle built Hellyer they did not include a gold circuit, I assume due the capex relative to the gold price at the time didn't warrant it (1980's).
As the price of gold and silver have risen over the years this resource has become economically attractive.
Historically, testwork has been completed on the ore and two methodologies to extract the Au/ Ag have been technically proven.
The tailings are sitting in a very large dam covered by a shallow layer of water.
BSM DEVELOPMENT WORK
BSM has completed a scoping study in 2010 and is currently undertaking a testwork programme to evaluate and compare three competing technologies:
(1) Cyanide Direct Leach (2) Pressure Oxidation with/ without Lime Boil (3) Albion
BSM have been able to improve the recovery rates for Ag and Au compared to the historical testwork.
Delays in the the Perth Laboratories have held this project up by some months.
The final testwork on the Ag recovery using POx Lime Boil is expected within the next 6-8 weeks. From here a PFS should be completed quickly and a preferred technology chosen to take through a BFS process.
The photo below shows the panned photo of the tailings dam to allow the scale of it to be appreciated.
The remaining testwork for Ag recovery using a Lime Boil is critical in determining the process chosen.
POx vs. Albion is probably where the decision lies. From the table above it can be seen that Albion has slightly higher gold recovery compared to POx.
From BSM's recent announcement (page 4, 09/09/2011) it can be seen that POx alone does not recover much Ag at all - when Au recoveries are high.
Albion recovers 86% Ag (with 92% Au) whilst POx (with 84% Au) only recovers 6% Ag... not enough given the 32m oz Ag resource in the tailings.
The final testwork for POx by adding a Lime Boil process is trying to improve the Ag recovery whilst not lowering the Au recoveries.
The published capex of $140m (Albion) and $116m (POx) will change if, under POx a Lime Boil process is added. This MAY make the capex for each technology very similar.
Unless the Lime Boil can recover > 85% Ag without affecting the Au recovery then, IMO, Albion should be the process chosen if the capex are similar.
NPV ALBION MODEL
I have had a crack at modelling the project value at a very basic level with the information published to-date. I've shown my inputs and outputs... NOTE - don't rely on this!!
You can see from these numbers why I am sticking around !!
PROJECT DEVELOPMENT
BSM have a good site and lots of installed infrastructure, close to a main road. There is a major electricity corridor running through the property and support infrastructure that is associated with the Hellyer Mill (e.g. substation).
The modeled capex for either an Albion or POx plant was on a stand alone basis and there is likely to be cost savings due to already installed infrastructure and synergies with the Hellyer operation.
BSM has also secured a near by Limestone deposit for use in any gold project. This too should lower the opex further.
The Project is likely to be funded up to 50% debt, requiring BSM to source the remaining 50%. This may affect the project timing or the size of the processing plant.
BSM's Fossey/ Fossey East/ Que River/ Hellyer/ McKay(?) VMS operations will provide a good chunk of the required equity cash.
BSM should be able to churn out a PFS very quickly once the Lime Boil Ag testwork is completed.
A BFS then may take 6-9 months. A further 6-12 months will be required in detailed engineering design/ contract and supply procurement/ financing/ and pre-construction work streams. Then 12-15 months will be required to construct the Mill after which time commissioning and ramp up will occur.
The project MAY be able to parallel some work streams to reduce the lead time. IMO a first gold pour COULD be in the order of 30-36 months away IF BSM are able to pull-finger.
The project itself with a $680 oz opex and with the macro outlook for Ag and Au for at least the medium term is attractive.
Cassey Research has provided data that indicates the BSM opex is just below the average Australasian per oz opex which provides a degree of downside protection for the project if Au and Ag prices fall.
All in all, I am staying invested in BSM due to this "known" upside and the very clear pathway for BSM to pursue its development.
There is no resource or mining risk associated with the project; the opex is attractive and; the capex is achievable.
CONCLUSION
- Large Ag and Au resource with reasonable Au eq. grade
- BSM has a process to develop project
- Very attractive NPV and free cashflow
- Time horizon not too distant to first gold pour
- Opex in lower half of producers and capex achievable
- "Known" upside that should re-rate SP over time as milestones achieved
That's it from me... I hope the four Site Visit posts have been helpful and assist you in making a decision whether to take up your rights entitlements or not.
(In case you're wondering. I went big into T1 and these posts are not altruistic at all. I want the rights entitlement to succeed so that BSM can fulfill its potential, develop its gold project and make me (and other shareholders) lots of money !!) Cheers John
BSM Price at posting:
20.3¢ Sentiment: Buy Disclosure: Held
