Bardoc Gold Ltd (ASX:BDC) has initiated a strategic review of the development strategy for its 3.07-million-ounce namesake project, 40 kilometres north of Kalgoorlie in Western Australia.
The review has been prompted by a rapidly escalating cost environment due to rising materials and input costs, the tightening WA labour market and other COVID-19 related supply challenges.
Promisingly, Bardoc remains in a strong financial position with $10.6 million in cash and no debt.
"Ultimately deliver positive outcomes"
Bardoc chairman Tony Leibowitz said: “The decision to undertake this strategic review is a necessary and pragmatic decision which we firmly believe will ultimately deliver positive outcomes for our shareholders.
“It has become increasingly clear that the rising cost environment across the WA resource sector has made this a very challenging time for any company to launch a significant new mine development.
“The board is not prepared to expose our shareholders to this level of risk at a very challenging time in the resources cycle, and we are certainly not willing to take on significant amounts of debt and potentially blow our capital structure out to develop a project.
"All of that said, we have a unique and highly valuable asset in the Bardoc Gold Project with a resource of over 3 million ounces, 1-million-ounce reserve, a premium location on the doorstep of Kalgoorlie and exceptional exploration upside which remains to be unlocked.
“Our focus as a board over the next few months will be to continue exploration to grow our resource and reserve base while pursuing strategies to crystallise the value of our asset base for shareholders.”
Bardoc Gold Project, tenement location plan.
Key considerations
The key considerations leading to the decision are:
- The $55 million increase (31%) in the pre-production capital cost estimate for the project from the definitive feasibility study in March 2021 ($177 million) to the cash-flow optimisation study in September 2021 ($232 million);
- Indications received from key suppliers and contractors since the completion of the cash-flow optimisation study that cost pressures for new resources projects are likely to continue to worsen over the next 12-18 months as the full impact of rising steel, materials and input costs is factored in for new projects starting construction in the near term;
- Severe tightness in the market for skilled personnel, services and equipment, has been further exacerbated by COVID-19 related border closures and restrictions on the movement of people and equipment; and
- Recent global market volatility and instability, which has impacted investor confidence and also reduced risk appetite amongst major institutional investors – particularly for new-build projects in a rising cost environment.
Alternative pathways
Bardoc’s strategic review will consider alternative pathways to unlock the considerable value of the Bardoc Gold Project for shareholders given its strategic location, large resource and reserve base and strong economics which include:
- An increased exploration focus to pursue several recently identified opportunities for resource growth and discoveries;
- Strategic M&A opportunities; and
- Other development or production pathways with the potential to monetise the deposits.
FID deferred
In light of these factors, the board of Bardoc has decided that it is in the best interests of shareholders to defer the Final Investment Decision (FID) originally targeted for the end of 2021 and begin a strategic review to identify alternative pathways to unlock the value within the company.
The company will continue to focus in the short term on the ongoing resource expansion drilling program at the cornerstone Zoroastrian Deposit.
This review is likely to include consideration of strategic M&A and consolidation opportunities, as well as other pathways to monetise the deposit in the near term.
While the review is undertaken, the board has made the necessary decision to terminate all expenditure related to pre-development and project financing activities and will also review corporate overheads and costs across the business to reduce monthly cash burn and maintain the company’s strong balance sheet.