The Sophisticated Investor Report June 2017

Blackham Resources (ASX:BLK)  has announced gold production for the June 2017 quarter of 15,720oz Au (14,920oz – March 17).  Highlights include:

·         Gold production – 15,720oz (14,920 – March qtr);

·         Operating Costs -C1 – A$1,439 & AISC – A$1,758;

·         Cash & bullion – $19.7m;

·         Debt repayment – $2.8m – July; and

·         Mining of higher grade OP areas commenced – July.

Analyst Comments – June Qtr results: Gold production for the quarter was lower than anticipated (16koz actual vs. 21koz TSI) due to lower grade ore mined from the open pit areas, as well as lower grade and tonnage mined from underground.  This resulted in the company marginally missing their revised gold production target for the year (forecast 40koz vs. 39.5koz actual).

Despite the mining operations falling short of our expectations, the processing facility has resolved its initial “teething” issues, as it achieved 98% of nameplate design for the quarter.

September Qtr – Forecast:  Despite it being less than one month into the new quarter, Blackham appears to have potentially turned the corner, which could see improved production as well as lower operating costs for the September quarter.

First, head grade mined from the open pit areas should improve vastly as mining of the higher grade area of the M4 pit (BLK forecast – FY18  – 1Mt @ 1.5g/t) and the Galaxy pit (BLK forecast – FY18  – 370kt @ 1.90g/t) has commenced.

Costs from the open pit areas should also fall due to a significant reduction in the forecasted strip ratio (BLK forecast CY18 6:1 vs. CY 17 actual – 14:1) compared to last year.  The strip ratio was higher than anticipated during 1H17 due to increased development, however as this work is now completed, lower costs are likely in the upcoming quarter.

Finally, development of the Golden Age underground deposit has been suspended.  Whilst we believe there remains long term value in this deposit, we believe this is the right decision for now as it will see an immediate reduction in costs, whilst also giving the company time to finalise their revised development plan for the deposit.

Financials: Despite lower production during the quarter, the cash balance stayed strong at $19.7m.  The company also announced $2.8m of debt was paid during July (Sept Qtr).

Blackham is also assessing options for financing the Stage 2 Expansion (PFS – Sept Qtr) together with refinancing the Company’s current debt position.

Valuation:  We value Blackham at $0.92/share.  This valuation is based on a 10% discount rate (previously 8%) for the combined Stage One and Stage Two expansions.

Our valuation decreased due to an increase in our discount rate, a slight reduction in our 2018 production estimate (TSI forecast 80koz at AISC of A$1,271 – no UG mining) as well as increased future shares on issue (Stage 2 Expansion; fall in current share price).

We believe if Blackham can consistently achieve their production targets for the remainder of 2017, their share price could quickly rally from its current lows as investors would not only regain confidence in the company’s ability to meet short term production targets, but more importantly begin to value the significant long term potential of the Stage 2 Expansion.

The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.