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Bellevue Gold (ASX:BGL) is about to become Australia’s newest gold producer.
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Bellevue Gold’s story
The current company was a tiny shell company known as Draig Resources back in 2016. It bought its namesake project in WA after it had spent 15 years in the hands of Barrick, which had done little work on the project. It had been an operating mine between 1897 and 1997 and produced nearly 1Moz (million ounces) of gold but had appeared to run out of life.
Bellevue Gold was chaired by Ray Shorrocks who bought onboard Steve Parsons, who founded Gyphon Minerals and made a successful M&A exit after finding a 3Moz resource. Tolga Kumova also came onboard as a key investor. The company began a drilling campaign in the last quarter of 2017 and has never looked back, delivering a return of over 5000% to investors.
A monster deposit
It has Total Mineral Resources of 9.8Mt at 9.9 g/t for 3.1Moz of gold. 1.7Moz of this is Indicated with the balance inferred. This makes it one of Australia’s highest-grade gold mines. Production will begin by the end of this year. The company forecasts a 10 year mine life and for $2.1bn of free cash flow, assuming a gold price of A$2,500/oz. This is the stuff dreams are made of.
The company prides itself not just on its ‘rags to riches’ story but how it is fully funded with A$133m in liquidity and has a solid ESG angle. It is aiming for Net Zero by 2026, to be 70-80% renewable energy powered and it has signed appropriate agreements with local Indigenous landholders.
Better than De Grey
Bellevue is in our view better than De Grey Mining (ASX:DEG), one of the few other companies that have made a major gold discovery in the past 5 years. De Grey may have a resource of 5.1Moz and higher annual production (at over 500,000oz) but it is lower grade at 1.5g/t. And De Grey will not be entering production until FY27.
The consensus target price is $1.71, a modest premium to the $1.52 it is trading at right now. The analysts covering the company expect $289.3m in revenue, $181.3m in EBITDA and 7c EPS – up exponentially from FY23 when there was no production from the project. Then in FY25, $535.4m in revenue (up 85%), $344.3m in EBITDA (up 89%) and 19c EPS (up 171%).
It is trading at 22.4x P/E for FY24, but the sector average is 27x. We therefore think Bellevue Gold is worth $1.89 per share – 24% higher than what it is now.
We acknowledge that sentiment around the gold sector is not hot right now. But keep in mind that there is past precedent for companies to do well if their project is truly a good one – see Gold Road (ASX:GOR) as an example. Also keep in mind that gold prices are currently near A$3,000/oz. Admittadly, this has been in part due to the weak AUD.
But keep in mind that its feasibility studies assumed A$2,500/oz, so it could be on track to make more money than it had originally anticipated. And it’ll be entering production over 3 years before De Grey Mining.
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