Institutional Research Note – Arlington Group, 30th January 2020

By | Media, Reports

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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ASR Research Note