Bellevue Gold Ltd (ASX:BGL) has received an 8% lift in target price to A$1.30 per share from Macquarie Research after the latest drilling results showed the potential to improve the forecast production rate and project economics at Bellevue’s namesake gold play in Western Australia.
Interestingly, the new assays underpin a feasibility study proposal to expand Bellevue’s production plant capacity by 33%, meaning it could churn out one million tonnes of resource per annum at start-up.
The following is an extract from Macquarie’s research update:
Event
BGL has provided a drilling update while also commenting that a 33% larger throughput will form the basis of the upcoming Stage 2 Study.
Impact
- Stage 2 Study in 1QFY22: Given the strong results since the last resource BGL has extended the drill cut-off deadline for the next resource/reserve estimate and now expects to release the Stage 2 Study in 1QFY22. The company notes that additional mining inventory expected in the Stage 2 study (mainly from Deacon and Marceline) will come from areas proximal to development already costed in the Stage 1 study which indicate the new ounces will be at a low rate of capital intensity.
- Upsizing the process plant: BGL is considering upsizing the plant to a throughput rate of 1.0Mtpa (up 33% from the Stage 1) which will now form the basis of the Stage 2 Study. The company expects the larger throughput rate to require minimal additional capital costs compared to the Stage 1 estimate noting that the plant was originally designed for easy expansion.
Earnings and target price revision
- Lifting our throughput rate 33% at Bellevue improves EPS by 63% in FY23, 43% in FY24 and ~40% out to FY29 due to production being brought forward. Despite the lift in near-term earnings the higher throughput (we have maintained our previous mining inventory) works to shorten mine life by ~3-years which results in 8% lift in target price to A$1.30/sh.
Price catalyst
- 12-month price target: A$1.30 based on a DCF methodology.
- Catalyst Deliver of the Stage Two Feasibility Study for Bellevue in 1QFY22 presents a key near-term catalyst.
Action and recommendation
- Maintain Outperform. Given the strong drill intersections since the most recent resource/reserve estimate BGL has opted to advance the Stage 2 Study utilising a throughput rate that is 33% higher than the Stage 1 Study. Given the low capital intensity of likely additional inventory, the low incremental capital cost implied by BGL for the expanded plant and the associated increased rate of production we expect the Stage 2 Study will likely see improved economics. We also view the decision to push back the drill cut-off date as prudent given the flow of strong drill intersections since the last cut-off date (November 2020) with 7 rigs currently operating at site.