BGL.V/BDRGF.PK Bandera Gold LTD.
notes from COACH posted on Stockhouse
One of the reasons I got excited about BGL in the first place is the fact that they plan a rapid development strategy and are targeting production to commence before the end of the year.
Now that I have reviewed the project in detail and seen the large tonnage of ore that is available for feedstock using lower cost extraction and processing techniques, I am even more bullish on the story.
For a typical junior, a large amount of capital must be raised to fund the exploration process, which is expensive and comes with no certainty of success.
Thereafter, if an economic resource is discovered, a great deal of capital must be invested just to get construction started and develop supporting infrastructure.
There are numerous hassles and delays from permitting and regulatory agencies that also add to the costs. Thus investors are subject to a great deal of risk along the way, and must be patient for several years in most cases, and the share structure becomes diluted along the way to raise all the money that is needed.
With BGL, we have basically inheritted a turn-key operation, complete with a local partner that has already funded much of the early stage work and secured the cooperation of stake holders and various levels of government.
A very limited amount of exploration activity is necessary to prove up a decent resource, and the ore that will be processed in the early stages will not require extensive development of infrastructure to access and transport it. So we have already leap-frogged the majority of peer companies in terms of advancement and the company is still very tightly held.
The decisions are still being made in terms of what the start-up phase processing plant will be built to handle, but I am guessing around 200 tons per day will be sufficient to both generate cash flow and allow the company to train personnel to grow to a larger operation.
A part of the property has already been reserved to allow for the construction of a leach pad, for the low cost processing of marginal grade ore, and that will be built later in the plan, but the feedstock can be stockpiled as the operations commence. Higher grade ore will be processed through a vat-leaching using pachuca tanks.
In the early stages of operation, the company will process ore composed of material extracted from the surface in open pit mining of the El Abra mine, and also a blend of tailings and remnants from waste rock dumps left by previous operators of the property.
There is more than enough material already identified to keep a 200 tpd operation running at full capacity for several years.
Assuming the company only runs higher grading feedstock through the recovery plant, they could focus on ore values of greater than $150 per ton, and with at least an 85% recovery rate, would generate revenues of approximately $25K per day. Even allowing for extraction and processing costs of $40 per ton (the high end of the range), that would still generate operating cash flow in the range of $16,000 USD per day.
After the plant has been running long enough for the company to gain valuable information to allow for the most efficient operation, and to allow an unskilled local workforce to become trained and proficient, the plans call for a much larger facility to be built centrally on the property.
The final production parameters are not yet in place but the project certainly could support a medium sized operation of between 2,000-5,000 tpd, and with further exploration success, ultimately greater than 10,000 tpd could be within reach.
Concurrent with the project development, the town itself will be rapidly growing and a beneficiary of improved infrastructure.
Along with improved housing, roads, and agricultural development, a stronger local service sector will build around the success of the mine, as higher paying jobs are created and capital investment accellerates.
Other smaller mining projects surrounding Cinco Minas will also become viable as contract miners send their ore to be processed at the BGL plant.
As the company grows, other mines on the property will be developed to increase the production, and also allow for greater security of operations. In the event that one mine is offline, having several other producing mines will provide protection against supply interuptions.
To summarize the upside for this company, I just consider the peer group of active juniors in Mexico. Smaller scale niche producers including GGC, DIB, EXN, IPT, and GPR are all trading with market caps between $50-$100 million.
Even assuming a limited growth potential for BGL to just achieve stable production of between 200-400 tpd, the company should be priced by the market in the range of $1.30 - $2.50 per share.
However, if BGL is successful to prove up a larger tonnage of ore and funds a larger operation capable of 1,000 tons per day or more, then the market could easily value the company with a capitalization greater than $1 billion dollars.
Even assuming significant dilution to fund expansion of operations, BGL shares could trade in double digits within 2 years.
The company has a head-start on so many others by virtue of the exceptional potential for resource definition and rapid development. Strong management and a secular bull market will add a tailwind. Considering the entire project, I am bullish on the future for the company and still consider the current share price to be greatly undervalued compared to the rest of the companies active in Mexico.
cheers!
COACH247
stockhouse.ca |
