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Bullabulling Gold on the cusp of transformation

Last updated: 23:15 20 Feb 2014 GMT, First published: 22:15 20 Feb 2014 GMT

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After almost three years of bloodletting, a mood of cautious optimism appears to have taken root in the junior resources sector.

This is reflected in an upturn in the share prices of stocks that have long been underwater – and it is helped in the precious metal space by a stabilisation of the gold price.

Still, there are a number of legacy issues that persist, not least funding, or the lack of it, which have forced executives to be more creative in the ways they manage scarce financial resources.

It is against this backdrop that Bullabulling Gold (LON:BGL, ASX:BAB) embarks on what could be a transformational year.

“The sentiment in general is improving. We started out 2014 with a greater degree of optimism and the gold price is starting to help us out at the moment,” boss Brett Lambert told Proactive Investors.

“That is certainly flowing through to improved stock prices for the producers. We just need to get a bit of recognition for those of us at the development stage.”

Bullabulling owns the gold project of the same name in Western Australia. It has a JORC-compliant resource of 3.76mln contained ounces at a grade of just over 1 gram per tonne, making it a globally significant undeveloped project.

There are two key value catalysts due this year: the upgrade of its resource to reserve status and the long-awaited completion of the definitive feasibility study (DFS).

Hampering that progress is the fact that Bullabulling needs to replenish it cash coffers to get the DFS over the line.

So, it is a chicken-and-egg conundrum that is not uncommon in the sector at the moment.

Bullabulling under Lambert has been very careful to conserve its cash until such a point it is capable of topping up its bank balances without excessively diluting existing shareholders.

But by spending the US$2mln or so needed for infill drill programme he will get a reserve that then should act as catalyst to the overall valuation.

The money is there, and you sense Lambert and his team are close to committing it.

“If sentiment begins to improve and we are feeling confident enough about future funding, we will commit to do some infill drilling needed to get the resource up to a reserve,” said the Bullabulling chief executive.

“That would be a key milestone for us. The timing on that remains a little uncertain, but we would like to be able to get that underway by the end of the quarter.

“That would enable is to move to a reserve position by around July. 

“As we have reported, we are expecting a substantial reserve of around about two and a half million ounces. This would set us aside from most of our peers.”

This careful attention to the cash balances means the group hasn’t been as aggressive as it could have been in pushing forward the DFS. Not that the Bullabulling team has been idle.

Lambert said the work has been of the “backroom” variety, fine tuning the mining programme, equipment selection and some metallurgy. 

“We have taken a conservative approach to our work programme in order to maintain a reasonable cash balance and in recognition that the market has been fairly volatile and sentiment very low. We thought it wasn’t appropriate to raise more money,” he explained.

Last year Bullabulling made a significant leap in shaving down costs to create a project that would survive in a much lower price gold environment.

Its C1 cash costs have fallen to US$843 an ounce from US$1,145 previously, while the all-in figure is US$930.

However, there may be room to tweak these figures down a little further as Lambert and his colleagues look at the consumption of reagents used in processing, such as cyanide and lime, as well as assessing more closely whether it can lift gold recoveries.

A previous study suggested the capital costs of creating a mine would be somewhere in the order A$326mln. However, more recent releases have also reported an estimated $32mln for mine establishment and $82mln for mining equipment – which makes for a cheaper start-up.

While certainly not prohibitively high, the figures involved have help perpetuate the prejudice that Bullabulling, valued at £8mln, is a small company developing a large project.

Of course, often it is more about skill set than the size of a company’s market capitalisation, and Lambert maintains Bullabulling has exactly the right team to take the project right through to production in 2016.

That said, he may consider taking on a partner – but only at the right time and the right price.

The definitive feasibility study, due to be completed by the end of 2014, will be crucial in focusing the market’s attention on the huge potential of Bullabulling.

The project is the third largest undeveloped gold deposit in Australia and a global survey showed it sat well inside the top 50 by resource size, while the grade, often seen as a weakness, exceeds the global and Australian average.

“If we can demonstrate the value of this project through initially getting it to reserve and then through DFS, we should see that value recognised and that should enable us to fund this ourselves or with a strategic partner,” Lambert said.

“We are a small company with a big project. One way or another the market may sort this. If we stay small and confidence returns then someone will jump on us.”

 

Proactive Investors Australia is the market leader in producing news,articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

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