Company Description - Beadell Resources Limited is engaged in the construction, mining and processing activities at its Tucano gold mine located in northern Brazil, and exploration for and evaluation of mineral resources in Australia and Brazil. It is primarily a gold producer with focus on its Tucano gold mine, located in Brazil. The Company has a portfolio of key gold exploration tenements throughout Australia and Brazil, including the Tartaruga and Tropicana East Projects. It operates in two segments: Australian exploration and evaluation and Brazilian exploration and evaluation. The Tucano site is located in Amapa State in northern Brazil, covering approximately 2,500 square kilometers of exploration licences and a mining concession. Its Tartaruga project is located 120 kilometers northeast of Tucano. The Tropicana East project is located adjacent to the AngloGold Ashanti/Independence Group.

Analysis – Beadell resources has reported the closing out of both its currency and gold hedges realizing a total of $16m. Subsequent to the close out, Beadell now has circa $30m in cash and bullion. The company has also replaced the previous Tucano Project finance facility with a new unsecured corporate facility (initially via a bridge facility before rolling into a $60m 3 year unsecured facility. Management also stated that it can turn its attention toward rewarding shareholders with a meaningful dividend stream after the Dec – 2014 financial year end. With estimated debt of US$78m (including leases) this implies a net debt position of A$51m and compares to A$91m at Dec-2013.


Tucano Location (Source - Company Reports)

The close out of hedge book now exposes the company to the spot gold and FX markets, which we expect will be a preferred situation for many investors looking for leverage to gold production. Also given the soft Q1 the refinancing provides Beadell with additional liquidity and the ability to accelerate exploration activities. However while June Quarter output should be up quarter on quarter after the restart at Duckhead on 9April, BDR’s cash balance suggests it was another difficult quarter. Guidance of 220 koz was restated during the March quarter implying a big second half is required.


Tucano Aerial View (Source - Company Reports)

We view the closing of the hedges favorable for three reasons: 1)Delivers further cash to the balance sheet. 2) Provides the flexibility for BDR to commence paying dividends. 3) Leaves BDR unencumbered to undertake regional exploration at its discretion. We also consider the incumbent Brazilian government’s stance towards monetary policy may lead to devaluation of the Real in the lead up to next general elections (October 2014), which would have had a negative effect on the value of BDR’s hedging program. We note that should the devaluation of the Real play out it would assist in reducing the US$ operating costs at Tucano. Taking into account the movements in hedges, debt and approximate cash position provided by BDR we deduce gold production during the June Quarter was significantly below our estimates.


Gold Reserve Expansion Plan (Source - Company Reports)

BDR has discovered a new lode of mineralization in an area of the mine thought to be void of economic gold. The gold lode now named “LOOKOUT” sits in the topographic high or saddle between the main Tap AB pit and the smaller Tap AB3/C pit to the north. The mineralized zone sits within a portion of the main north-south striking shear zone at Tucano however it had previously been sparsely drilled with all holes orientated to the east. This new LOOKOUT Lode has a strike of at least 70m and appears to plunge to the north. Mining has already commenced and is almost certainly to assist BDR in achieving 2014 production guidance of 200 – 220 koz. The prioritization of mining to the LOOKOUT Lode will displace lower grade budgeted ore mining and we estimate it is likely to add incremental ounces of 10-20koz over FY14/15 although note it is too early to be definitive.


BDR Daily Chart (Source - Company Reports)

BDR will now look to replicate these results at depth by extending the holes that ended in mineralization and drilling beneath currently defined lode. The potentially longer term benefit if the mineralization does plunge off to the north and forms an additional lode at depth between Tap AB and Tap AB3/C could lead to a significantly larger open pit joining the existing pits and or allow the delineation of an underground reserve. The location of the lookout lode is also of importance. It is directly adjacent to the mill and with a haul road already in place provides for a very short, downhill haul for ore.


Top 10 Brazilian Gold Mining Companies (Source - Company Reports)

We believe incremental Carbon in Leach (CIL) plant optimization and improvements will be ongoing throughout the year. Work on improving the guidance is ongoing via: 1) Re-optimization of the current Duckhead open pit. 2) Increasing throughput to an annualized rate of 5 Mtpa by utilizing the recently commissioned Spent Ore Feeder. 3) Finding extensions or repetitions to the Duckhead ore body. Exploration expenditures of between US$10 – US$15 million is anticipated for CY2014 dependant on success. Prevailing plant throughput levels, which are approaching 5Mtpa will permit a production target of approximately 200,000 ounces to be maintained into 2015 with low cash costs.

Iron Ore Concentrate plant is at the back end of the CIL Gold plant to extract high grade iron ore from the CIL tailings. An off take agreement has been signed. Sales of concentrate are expected to commence in the current quarter. Iron Ore credits are expected to increase as the permanent port to ship iron ore concentrates at Santana is operational again in the current quarter.

As per the latest Tucano drill Results update release on 26^th May, Follow up drilling targeting the bottom of the designed pit at Duckhead delivered further exceptional results. The drilling was following up hole  FVM351 which intersected 31m @ 491 g/t Au. The new results announced are down plunge yet within the designed pit and include 19m@63g/t Au and 5M @ 25g/t Au. These results provide further confidence that the reserve at Duckhead is under called and the 2H14 production is on track to deliver +130koz. We maintain our BUY recommendation due to a large resource base and significant prospectivity at Tucano.  Step out drilling at Duckhead has confirmed the continuation of the very high grade main lode whilst turning the drill rigs around at the edge of Tap AB has discovered a new lode which will almost certainly add ounces to the mining inventory for the remaining of FY14 and FY15. We reiterate our BUY on the stock at the current price of  $0.58.

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