Company Overview - Beadell Resources Limited is an Australia-based gold producer company. The Company’s primary asset is the Tucano gold project, located in Brazil. Tucano has gold resources of approximately five million ounces with 1.7 million ounces in optimised open pits plus over 2,500 square kilometers of highly prospective gold exploration tenements. It also has a portfolio of gold exploration tenements throughout Australia and Brazil, including the prospective Tropicana East Project located adjacent to the Tropicana gold deposit managed by Anglogold Ashanti Australia Ltd in Western Australia. Tropicana East Project has a strike length of approximately 60 kilometers and has anomalous gold named the Hercules Shear Zone. The Company also operates Tartaruga project in Brazil, which is located 120 kilometers northeast of Tucano. Tartaruga’s resource consists of approximately 5.5 megatons of gold at 1.6 gram per ton for 279,000 ounces.
Analysis - In the quarterly report for period ending 31 December 2014, Beadell Resources (BDR) reported for gold sales of 54,892 ounces with production of 59,180 ounces. The cash costs (including royalties and iron ore credits) were US$593 per ounce. The all-in sustaining costs (AISC) were reported to be US$638 per ounce. There has been a great improvement in mining and milling costs. About 24% reduction quarter on quarter in unit mining and milling costs is estimated on a per tonne basis. Cash and bullion as at 31 December 2014 totaled $73 million. Under the recent financial update released in Jan 2015, BDR announced for the rolling of the US$60 million Bridge Loan with Santander which has been rationalized into a 3 year Facility with Banco Santander and Banco Itaú. This is a major positive for working capital and is repayable in 12 equal quarterly instalments 15 April 2015 onwards. Also payable are the interest payments of USD LIBOR + 3% pa on the outstanding balance. Accordingly, BDR is having a strong financial position. The mining partnership agreement with MACA Limited commenced effective from 1 November 2014 and led to a total of ~$40 million being received (including US$14.5 million for the machinery lease facility held by BDR and in the process of either being assigned to MACA or paid out). The Company further stated about having immediate positive results owing to the aforesaid development. With regards to implementing a dividend plan after end of year financial results, BDR reports a pending action.
The total material mined for the fourth quarter ending 31 December 2014 was 38% above the previous quarter. Waste mined was 12% higher quarter on quarter and gold ore mined was 158% higher quarter on quarter. BDR reported record quarterly carbon-in-leach plant throughput of 1,185,343 tonnes (4.7 million tonnes per annum rate), indicating a 5% improvement over the previous quarter. The fourth quarter mill feed grade was 1.70 g/t, a 64% improvement over the previous quarter. Low grade stockpiles bettered since mining began in 2012.
Duckhead Main Lode Long-section showing Location of New Drill Results (Source – Company Reports)
With regards to Duckhead Main Lode, drilling intersected wide zones of extremely high grade gold mineralisation extending outside of the current open pit limits with results up to 28 m @ 266.8 g/t gold including 5 m @ 1,467.3 g/t and including 1 m @ 6,844.6 g/t. BDR further reported that an open pit cutback at Duckhead Main Lode is being assessed and will be completed in the 2015 dry season. This is expected to generate an additional 35-45,000 ounces of gold. For the Duckhead mine corridor, a new gold anomaly named Goosebumps located 500 m east of the Duckhead open pit has been identified through systematic aircore drilling. Further, auger results up to 1.4 g/t gold bottom of hole and up to 13.5 g/t gold in re-sampling of a nearby iron ore diamond hole have been determined. Infill RC drilling recorded strong drill results from the Hangingwall Lode with new results of up to 8 m @ 9.0 g/t gold received from a parallel lode structure immediately below the main Hangingwall Lode.
Shallow oxide open pit targets were drilled with regards to Tucano mine corridor. This returned promising results at the Gap (24 m @ 5.7 g/t gold), Tap C3 North (26 m @ 2.6 g/t gold), Tap D1 (19 m @ 3.8 g/t gold) and a new Urucum Lode (9 m @ 9.3 g/t gold). Mirante Lode has been discovered between Tap AB2 and AB3 pits. Further, about 10,000 m pre-feasibility resource delineation drilling program has been initiated with the first hole intersecting 11.9 m @ 7.3 g/t gold including 4.6 m @ 19.1 g/t gold with regards to the Urucum underground.
Urucum Long-section showing Location of New Diamond Drill Results (Source – Company Reports)
As per the Company, gold sales guidance for CY2015 of 170,000 – 190,000 ounces (a practical range) with AISC between US$810 – US$890 per ounce has been provided. BDR has further budgeted non-sustaining capital expenditure of US$12 million and exploration expenditure of US$10 – US$12 million. This guidance excludes any high grade ore that may come into production in 2H15 from the Duckhead deposit.
CY2015 Guidance (Source – Company Reports)
In terms of Tucano regional exploration potential, exploration is underway with fly camps established at Mutum and Sentinela targets which are located 20 km east of Tucano gold mine in Brazil. Grant is awaited for the Mutum target. Other developments include 9 km long soil anomaly at Sucuriju with extensive old workings and advanced satellite gold project located at Tartaruga, 120 km north east of Tucano with inferred resources of 6.5 Mt @ 1.63 g/t gold for 337,000 ounces. BDR confirmed that drilling in 2015 would help expand resource base. Highly prospective tenure in the Tropicana belt includes renewed focus on the Pleiades gold anomaly, Hercules and Atlantis gold prospects, and core tenement application 25 km southwest of Tropicana Gold Deposit.
Tropicana East Project showing Location on Aeromagnetics (Source – Company Reports)
Looking at the preliminary unaudited gold sales for the December Quarter 2014 of 55,000 ounces of gold at quarterly ASIC of between US$595 and US$615 per ounce of gold, total CY2014 gold sales of ~166,000 ounces of gold is reported to be ~7% below lower end of guidance of 180,000 ounces of gold. This is owing to the timing of the mining and processing of the very high grade Duckhead ore. Mining at the Duckhead pit was thought to be completed by end of 2014, however, it got deferred by few weeks in view of complexity of mining the pit on a neighboring tenement, controlled by a third party. BDR expected ~8,000 ounces of supplementary gold from this source at very low strip ratio. BDR conveyed that completion of the Duckhead pit will facilitate entire mining fleet to be deployed in the lower strip ratio Tucano pits throughout 2015 to have efficient and exceedingly productive mining practices by MACA. This would help in having a low cost gold production throughout 2015 with anticipated gold sales of ~180,000 ounces at a gold grade for the year at an average of ~1.4 g/t gold.
BDR Daily Chart (Source - Thomson Reuters)
Mined material including waste of 4.8 Mt has been remarkable and highlights the importance of having MACA as the mining contractor. The increase in material movement after Duckhead satellite pit’s completion is also of critical importance. Nonetheless, CY15 may turn out to be a little volatile (with varying production, costs and capex) and there may be a need of a further total material movement with potential re-introduction of Duckhead tonnes in 2H. Primarily, a feebler 1H production may result given mill re-line and any delays due to wet weather. Nonetheless, in view of strong balance sheet and December quarter results, BDR’s potential cannot be undermined. Of course, fluctuations in gold price and foreign exchange are to be watched.
Based on the foregoing, we reinstate a BUY recommendation for the stock at the current price of $0.335.
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