Brightstar Resources (ASX: BTR): Interview with Managing Director Alex Rovira

 

Brightstar Resources (ASX: BTR)

We spoke to Alex Rovira, Managing Director of Brightstar Resources (ASX: BTR), about the completion of his company’s merger with Kingwest Resources. The two companies together have JORC Mineral Resources of around one million ounces, all located on granted Mining Leases. We discussed the potential for low capital costs given that Laverton Processing Plant will now require much new expenditure to take off care and maintenance. And we talked about the development potential of the Menzies Gold Project which came from Kingwest and which aggregates this field for the first time in a long time.

Full transcription below.

 

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Transcription

 

Stuart: Hello and welcome to “Stocks Down Under.” My name is Stuart Roberts and I’m one of the co-founders of our firm. And joining me today from Perth on the afternoon of Monday the 22 May 2023, is Mr. Alex Rovira, who’s the managing director of Brightstar Resources, ASX: BTR. Alex, good afternoon.

Alex: Good afternoon, Stuart. Thanks for having me.

Stuart: Now, I imagine after you finish from this call, you’ll be breaking open the champagne because you’ve just about completed the merger with Kingwest Resources. That’s a transaction you announced last December. And obviously, these things generally take more than a few weeks to get done. You’ve had this transaction that worked for the best part of six months, and the Kingwest assets are now almost yours.

Alex: That is correct. Yeah, it’s certainly been a long process. Look, it had its ups and downs, but the shareholders approved that two weeks ago. We had the second court hearing last week which approved it. So the court orders went out and the implementation date is this Friday. So post this Friday, it all wraps up. We’ll be one entity. We’ll have nearly a million ounces between any large group and, yeah, pretty excited to get on with building some gold mines.

Stuart: Right. A lot of things to like about the merged group. Let’s start with the assets that you bring to the table. Up near Laverton, you’ve got a mill which is surrounded by about three or four deposits, the main one of which is Cork Tree well, which is your half of the roughly a million or so in resource ounces that we bring to the table. But it’s that mill that’s particularly important. If we were to build a mill like that from scratch, your friends at GR Engineering estimate that it might set you back something like $70 million for a half a million tons per annum of capability. Am I reading it correctly?

Alex: Yeah, that’s correct. That’s probably a good ballpark. And I suppose that number specifically would come from some of our peer groups that have recently either built mines or released studies. So I think that the best reference point there would be the Musgrave Minerals pre-feasibility study that I think there was a half a million ton per annum mill and was circa $70 million CapEx tagline just for the plant itself. And there’s a number of other examples in terms of the recent mines that have been built in WA, but I think that’s a fair comment in terms of the cost for a new one. Yeah.

Stuart: Your consultants have looked at your mill. They reckon it’s in pretty good shape. So, you just need to do a bit of maintenance CapEx around the edges. And obviously, the numbers need to be worked out. It’s a heck of a lot less than $70 million by the looks of it.

Alex: That’s correct. And look, that’s a key kind of selling point for this merger and for this company specifically. I mean, Como Engineering did that report into the plant refurb around about two years ago. They priced it at $5.5 million dollars as a capital cost. Look, it’s certainly a lot closer to 5 than it is 70 for a brand-new one. So, for us, when I look at the sector and the Greenfields developers and our peer groups, the necessity to raise significant quantums of money is not there for us. So, the ability and the hurdle rate to get into production is much lower.

Stuart: Right. So you’ve got your half a million ounces or so in four deposits, the key of which is Cork Tree Hill, and you’ve got the plant. Down the road with Kingwest at Menzies, the people who run Kingwest have basically consolidated most of the Menzies field for the first time in living memory. You’ve got to go back to when Queen Victoria was on the throne before Menzies was in one pair of hands. That might be an exaggeration, but basically, we’ve been waiting a long time, those of us who know Menzies, for this kind of situation to emerge.

Alex: Absolutely. And Menzies is a super high-grade historic goldfield. It’s mined 800,000 ounces at 19 grams per ton since the late 1800s. So, it is a well-renowned storied goldfield, mined 800,000 ounces, currently a 500,000-ounce resource. So, you know, it’s at least a 1.3 million ounce endowment field, and we think there’s a lot more to go in that.

Stuart: Right. And it’s fair to say underexplored in recent years as well. But that’s something you intend to correct.

Alex: Absolutely. Yeah. I think going into it with the right frame of mind and the right mindset looking for margin and looking for grade because that’s ultimately what’s gonna support production opportunities.

Stuart: Right. The merger valued using your stock compared to the others. The transaction value was about $18 per resource ounce.

Alex: That’s correct.

Stuart: That is what it is. But we’ve seen a pretty good environment for gold in the last couple of years as gold is…not a couple of years, let’s say 12 months, as gold has bounced off the lows of 2021, ’22. What are you seeing once the market gets to appreciate the quality of the assets you’ve brought together? What’s a more appropriate number in terms of…for near-term developments in the Western Australian goldfields?

Alex: So, from my perspective, I think our peer groups we could readily quote would be trading at anywhere between $50 to $60 an ounce in the ground as an EV per ounce multiple. I think if you then look at, given the fact that we’re in Western Australia, all our resources are on mining leases. We’ve got a processing plant there in current maintenance, so we’ve got a path to actually monetizing these assets. I think we should be trading it much higher than that, $50 to $60 per ounce.

Stuart: It’s not anywhere in Western Australia. We’re talking in the same neighborhood as Granny Smith, Sunrise Dam, Gwalia, etc. You’re in prime country there with some assets that…I won’t say have been overlooked, but it’s been where a lot of new gold has been discovered in recent years and a lot of gold will still be discovered.

Alex: Absolutely. Yeah, you’re correct. You’re in the part of the world where you get some pretty significant deposits. So, for us, it’s really just trying to tap into that exploration upside and grow something.

Stuart: So, talk to me about what’s on your agenda post next Friday when the merger formally completes. What do you hope to spend the next six months doing up till Christmas?

Alex: So, racing through a scoping study and a pre-feasibility study and exploration. So, we’ve got pretty ambitious exploration programs both at Laverton and Menzies. We can see pretty significant exploration upside. I’d love to be able to take that resource from just shy of a million ounces now to something much higher than that. I think that underpins restart scenarios, but similarly, at the same time, as I said, going through the scoping study and a pre-feas, I think we need to be going to the market, showing everyone rough-level production profiles all, and sustaining costs, CapEx, OpEx, that kind of thing. So, that way the market can actually value appropriately.

Stuart: Okay. And coming into 2024, is it too early to say that this would be the year of the restart in ’24?

Alex: Quite possibly, yeah. It’s certainly something that aspirationally we’re looking at doing in terms of the timeline, as I said, everything’s on mining leases, so the permitting and the approvals process is well known and something that could be achievable. The refurbishment of the plant and the potential expansion of the plant is something that could be achievable in that timeline. So, really, it’s just about drilling out the deposits, declaring reserves as part of the studies, and looking at how you finance it. And as I said, the ability to finance this is significantly greater than potentially some of our peers simply because the CapEx is so low.

Stuart: Many investors won’t have met you. This is your first foray into corporate land. Up until now, it’s been a few years at Patterson’s moving into Canaccord, and before that, UWA studying geology and then Hale School. So, what motivated the big jump out of Canaccord into corporate land?

Alex: Well, that’s a very good question, something I do get asked frequently. So there was nearly 10 years in investment banking and corporate finance at Patterson’s and Canaccord and geology by background. Look, I knew these assets really well, and I saw the opportunity to go in there and assist the existing teams and help build a team in place. Look, we’ve brought in a few key hires, people that can come in and actually have experience doing feasibility studies, building gold mines, getting things permitted. I think that the opportunity to go in and join the team and help create value is something that I actually look forward to doing. For me, it was a personal opportunity to roll the sleeves up I suppose, and get in the trenches and try and build something.

Stuart: And talk to us about some of the people joining you. I see you’ve got Greg Bittar coming across from the Kingwest side to grow with you on the board. Many folks on the East Coast will know him. Tell us about some of the other players you’ve got.

Alex: So, we’ve got Jona Downes as well on the board as a non-exec director, so geologist by background. He’s the managing director of Kaiser Reefs which is a gold miner over in Victoria, [inaudible 00:08:23]. So, to have very experienced bankers, finance guys, a lawyer, and someone like Jon O who’s actually running a gold mine at the moment. There’s some pretty good skill sets there from a board perspective. And then in terms of the operations teams, got a gentlemen called Dean Vallve who’s joined as chief operating officer Excalidus and a few other places Minjar and things. So guys have actually built mines, operated mines, done feasibility studies, we’ve got some…just had a pretty key guy in the permitting and the approvals front. So really building up the ground roots team I suppose that people have actually done this before.

Stuart: Talk to us about the challenges you expect to run up against in that building up through the scoping study and the pre-feas. Nothing ever quite goes to plan as your investment bank experience would have would have shown you. What are you concerned about?

Alex: Look I think in the current market context despite the gold price, it’s access to capital and its interest levels in small cap explorers. I think the market is still really difficult unless you’ve got lithium or rare earths, it’s still pretty tough out there.

Stuart: You must be crazy. You haven’t put a single lithium or rare earth play into this company, Alex. What’s wrong with you?

Alex: I know, I ask myself that all the time. Well, you’ll note that we’re actually only a few kilometers from Linus’s Mount well deposit, so I have no doubt we’d have some rare-earth-bearing clays on our ground. So, I could always wheel out the air core of the auger rig and claim a rare earth discovery. But no, we’re ultra-focused on building a gold mine here. So, that’s certainly the playbook.

In terms of overall risks, I think access to people is a tough one in the current market and certainly the cost environment for building a gold mine and operating a mine. So, I think at the moment we’re well insulated from that just by virtue of where we are in that development cycle. But as we go towards refurbishing a mill, getting back into production, that’s when some of those…the widely spoken about inflationary pressures and labor pressures in the market probably start to come home a bit.

Stuart: Right. And obviously, that’s not going to change overnight because we spent two years of Western Australia being the hermit kingdom. All that labor that couldn’t get into the state is yet to come in in a serious way.

Alex: Absolutely. Yeah. Look, I think it’s abating somewhat, is when you kind of talk to some of the guys in the mining space and you see it in the recent round of quarterlies. But yeah, it’s certainly something that I think most management teams you’ll find of operating mines or developers are ultra-conscious of.

Stuart: Right. Well, Alex Rovira, well done on almost completing the Brightstar-Kingwest merger. Well done on you taking your risk in this company, and I hope it pays off in a serious way for you. We’ll keep track on you as you progress.

Alex: Appreciate it. Thanks. Lovely time, Stuart.