Production and growth: unlocking Wiluna’s riches
Having successfully consolidated and re-established production on one of Australia’s most prolific goldfields, Blackham is now well set to progress the next phase of growth from its 6.7Moz Wiluna portfolio.A 2017 PFS demonstrated the merits of expanding into the higher-grade sulphides (70% of resources) and developing refractory processing capacity to increase overall gold production from the current 80-90koz pa rate (all free-milling) to over 200koz pa.
Potentially deliverable for a modest capital outlay of just A$114m, this could see AISC lowered to circa US$800/oz and margins widened to 35-40%. Moreover, with oxide reserve additions, current free-milling operations could be extended, pushing combined post-expansion production closer to 250koz pa.
Yet Blackham’s shares are trading at a heavy discount to peers (2.4x forecast FY2019 cash margin and US$34/oz reserve, vs sector averages of 5.5x and US$339/oz), a hangover from production and financing challenges in 2017. With operations now stabilised and near-term balance sheet pressures alleviated, we feel this mispricing offers a compelling entry point.
Our A$0.18/share diluted sum-of-parts valuation points to 4x upside. And with scope for further optimisation and mine-life extension beyond that considered in our model, upside may be greater still. Achieving operational targets, growing the free-milling inventory and completing expansion study work should kick-start an upwards re-rating, in our view, paving the way for funding and development of the expansion to more fully unlock Wiluna’s undoubted potential.
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Blackham Resources have re-fired open pit mining at the Wiluna gold mine for the first time in a decade in a plan the recovering producer hopes will secure the long-term future of the operations.
The company is shifting its main source of production from the Matilda open pits, 20km from the 1.8 million tonnes per annum Wiluna processing plant, to higher-grade resources in the immediate vicinity of the mill.
Blackham executive chairman Milan Jerkovic said the Wiluna deposits, starting with the East-West pit, would deliver higher- grade base load feed at lower operational costs than the Matilda pits, which burnt cash early in their lives because of expensive pre-strips.
Blackham has outlined “free-milling” open pit resources around the mill of 5.1 million tonnes at 1.43 grams per tonne for 236,000 ounces.
Blackham shares closed higher yesterday at 4.7¢.
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Blackham hails turnaround: Zach Relph
A bold Milan Jerkovic has praised Blackham Resources’ board and management for emerging from last year’s tumultuous financial turmoil to deliver a record-breaking quarter to kickstart 2018.
Blackham was scrambling to meet a $14.8 million debt repayment in the December quarter as the northern Goldfields gold miner struggled to reduce strip ratios at its flagship Matilda-Wiluna project.
After prominent mining contractor MACA bailed Blackham out with a new $14.3 million loan to repay financier Orion Mine Finance, the company led by Mr Jerkovic has reeled in its problematic all-in sustaining costs.
On Monday, Blackham reported production at the 6.5 million ounce Matilda-Wiluna gold project had soared by 38 per cent in the January quarter, with 20,631oz produced at March’s end.
Blackham’s AISC also reduced 42 per cent from $1882oz to $1092oz in the quarter, while cash and bullion was at $29.2 million.
Mr Jerkovic conceded the last half of 2017 was difficult but said he was overwhelmed with the gold miner’s recovery.
“It was a very, very trying six months, particularly in the last quarter of last year,” he said.
“The personal and professional efforts were put in and the results are testament of the work that was done to get there.
“There is no doubt that the board and management, while they’ve been publicly hurt by the experience, there is no question in their work to get to this point.”
AISC at Matilda-Wiluna have been slashed by more than 50 per cent since the September quarter when they were at a mammoth $2236. Milling also increased from 379.4kt in the September quarter to 477.5kt at the end of March.
Mr Jerkovic said there would be a continual focus placed on maintaining Matilda-Wiluna’s currently low AISC.
“We are trying to reschedule and improve the plan as we go to ensure the incremental strip ratios don’t blow out again and we need to put more capital into ore access,” he said.
“We have three rigs onsite at the moment improving the underground plan, adding new reserves from around the mill itself and extensional drilling around the current mine.
“We are reasonably confident (the strip ratios won’t increase) because the geology we know, but until you get the drill results back and analyse them and put your reserves around them, there is a risk.
“But we are fairly confident that we have a solid plan going forward that we can improve.”
Blackham Resources shares closed down 0.4¢ at 7.8¢ yesterday.