But it didn’t go down like that for Bellevue Gold when it unveiled its five-year growth plan for its namesake mine in Western Australia’s Northern goldfields on July 25. Its shares were smashed and are only now starting to recover with buying support from the likes of BlackRock.
The mine achieved commercial production in May – six years and three months after the discovery hole of 5m at 37.5 grams per tonne lit up the former high-grade gold operation after it spent 20 years in the wilderness.
Things have been going well too, with production for FY25 forecast at 173,000oz (midpoint) at an all-in sustaining cost between A$1750-1850/oz, which would put Bellevue amongst the lowest cost Australian producers like Ramelius Resources and Capricorn Metals, and Evolution Mining with its copper kicker.
But the rapid-fire growth in the resource at Bellevue to 3.2M oz since the discovery hole, and the establishment of a 1.5-2.5Moz exploration target in the previously inaccessible southern reaches of the gently dipping Archaean lode, has always meant Bellevue was destined for a bigger future.
The bigger future is what managing director Darren Stralow delivered to the market on July 25 in the plan to take Bellevue to 250,000ozpa n FY28 at lower AISC of $1500-1600/oz.
Turning good into great
The idea is to turn what is a good mine in to a great mine by taking in some lower grade material in addition to Bellevue’s high-grade core at a time of record Aussie dollar gold prices. It seems sensible and, as suggested, an expansion to higher rates of gold production was always on the cards.
Remarkably though, the market coughed and spluttered on the day the five-year plan was unveiled because Bellevue decided the best way to finance the push out to 250,000 ozs was to first get its balance sheet in order by raising $150 million in a placement at $1.55, a 15.3% discount to the last traded price of $1.83.
Bellevue shares were sent 22% lower to $1.40 on the day and got as low as $1.24 on August 6. The shares had worked their way back to $1.43 in yesterday’s market.
The shorthand explanation for the sell-off was that the market doesn’t like surprises and, to some at least, the $150 million raising was a surprise.
Suspicions that the raising was to help paper over shortcomings at the mine were also a likely factor.
But, again, the mine is doing all it is supposed to be doing at this stage. Critically, the operation hit the reserve head grade of 6.1gpt gold in the June quarter and generated $41 million in free cash flow.
Bellevue could well have been content with its lot and continued on pretty much as is. It’s just that there are far greater returns (and a market re-rating) to be had by investing in a bigger operation and exploration to find more high-grade ounces.
But, spending the $320 million in capex over three years required to get to a sustainable 250,000ozpa would have been a stretch with free cash flow alone, given the servicing requirements on Bellevue’s $220 million project debt with Macquarie Bank.
Unlocking cash
So, $120 million from the placement is earmarked to reduce the debt to $100 million which Bellevue reckons will unlock enough operating cash flow to self-fund the five year growth plan and reignite exploration, as distinct from infill drilling, for the first time since June 2022 in pursuit of the juicy exploration target.
The $150m equity raising was very much Bellevue’s own decision, something it took proactively to Macquarie. So, it is not as if the bankers had a look under the bonnet and did not like what they saw.
The bank being a bank no doubt agrees that it makes sense to derisk the company by getting the balance sheet right to support the twin focus of growth to 250,000ozpa, and a return to exploration which in the past has delivered rich rewards.
As it is, that is certainly the free-thinking thought of equity analysts at Macquarie Securities – as distinct from the bank.
Debt-for-equity swap
In a research note dated August 9 when Bellevue was down at $1.28 a share, the analysts said the capital raise was essentially a debt-for-equity swap that reduces risk and frees up cash flow that can be spent on right sizing Bellevue.
“While the plan now includes lower-grade ore sources we view this as gold opportunistic with the original high-grade core largely unchanged,” the note said.
“In our view, this growth plan will be right-sizing Bellevue to become a more efficient, lower unit cost operation while also taking advantage of elevated gold prices to bring more lower grade material into the mine plan, albeit at a higher cost for those incremental lower grade ounces.”
It said that that with the share price “rebasing” following the release of the five-year plan, and in light of the growth plan, Bellevue was now outperform-rated with a $1.70 per share target price.
BlackRock, the world’s biggest investor in mining stocks, didn’t wait for the advice. It has been a buyer at prices down to $1.24 a share, increasing its stake in the company from 10.76% to 11.82%
