Bardoc Gold: Digging Into The Updated Pre-Feasibility Study

Summary

• Bardoc Resources released a positive Pre-Feasibility Study earlier this year for its Bardoc Gold Project in Western Australia.
• The study envisions average annual gold production of 135,000 ounces at all-in sustaining costs of $824/oz, with a very modest initial capex.
• Based on the company's current market cap, it is being valued well below the peer average from an enterprise value per ounce standpoint.
• Given the relative undervaluation with the company valued at barely US$80 million with solid project economics even at $1,500/oz gold, I see the stock as a speculative buy below A$0.08.

It's been a rollercoaster ride of a year for the Gold Juniors Index (GDXJ), with many sub $1-billion market cap juniors having their most volatile year in over a decade with the mid-March financial market turbulence. Fortunately, some of the better names in the sector have emerged from the rubble relatively unscathed, with the Australian miners leading the pack as several miners hit new all-time highs. One name in the industry that hasn't fully recovered yet is Bardoc Gold [BDC:ASX], even though the company released a Positive Pre-Feasibility Study in Q1, with robust economics and very modest initial capital expenditures. Using a conservative gold price of US$1,500/oz, the After-Tax NPV (8%) to Initial Capex Ratio comes in at 1.93, a solid figure, given the high discount rate used on the project. However, despite the impressive study released to the market, Bardoc Gold is trading below US$30.00/oz, and barely 0.3x P/NAV. Based on this undervaluation, combined with attractive economics in a Tier-1 jurisdiction, I see the stock as a speculative buy below A$0.08. All figures in this article are in US dollars at an exchange rate of 0.69 Australian dollars to US dollars, unless otherwise noted.

(Source: Company Presentation)

Bardoc Gold released its maiden Pre-Feasibility Study (PFS) for its Bardoc Gold Project at the worst time possible on March 17th, while financial markets were busy falling off a cliff. Despite the unfortunate timing of the announcement, the project economics outlined in the PFS were quite robust, with average annual gold production of over 135,000 ounces at all-in sustaining costs below the industry average of US$980/oz. Even more impressive, the study suggests very modest initial capital expenditures of just US$100 million to build the mine, and the project economics are outstanding, even when using a conservative gold price of $1,500/oz. Let's take a closer look at the company for those unfamiliar with Bardoc Gold, before digging into the study below:

(Source: Company Presentation)

(Source: Company Presentation)

Bardoc Gold is an ASX-listed gold explorer with its flagship Bardoc Project sitting 40 kilometers north of Kalgoorlie in Western Australia. The company's land package at Bardoc covers roughly 250 square kilometers, and the area saw historical gold production of over 100,000 ounces between 1987 and 1991 by Aberfoyle Gold. To date, the company has delineated a 3.02 million ounce resource at Bardoc, with an average grade for the project of 1.9 grams per tonne gold. The bulk of Bardoc's resource estimate is contained to three deposits, for the most part, with these three main areas being Zoroastrian, Excelsior, and Aphrodite. The Aphrodite deposit makes up the most significant portion of the resource, with 1.68 million ounces of gold at an average grade of 2.17 grams per tonne gold. However, the continued exceptional drill results from Zoroastrian in Q2 suggest that this deposit could contend with Aphrodite's endowment at some point. Let's take a closer look at the PFS below:

(Source: Company Presentation)

(Source: Company News Release)

As we can see in the table above, the PFS completed in March envisions an eight-year mine life at Bardoc with average annual gold production of 135,000 ounces at all-in sustaining costs of US$842/oz. The projected After-Tax NPV (8%) for the project comes in at US$188 million using a very conservative gold price of $1,500/oz, and the initial capital expenditures come in at just US$98 million. This translates to an After-Tax NPV (8%) to Initial Capex Ratio of 1.92, with upfront costs well below the industry average for projects with 100,000 ounces of annual gold production.

(Source: Company Presentation)

If we take a look at the chart above, we can see several different projects shown above, and they are displayed using average annual gold production (white line) compared to upfront capital (red bars). If we look at the far right of the chart, we can see that Bardoc Gold has the lowest initial capital of the peer group to get into production, with just US$98 million of initial capital expenditures. This figure compares quite favorably with the average across the other projects of US$203 million. When it comes to average annual gold production, Bardoc also stacks up relatively well, with 135,000 ounces of gold output per year compared to a peer average of 140,000 ounces. Therefore, Bardoc's Gold project requires the least capital to get into production, at 50% below the peer average, but it has a production profile only marginally below the peer average.

(Source: Company Presentation)

While an After-Tax NPV (8%) might seem pretty low at just US$188 million at $1,500/oz gold, it's worth noting that the PFS completed by Bardoc is based on only four of the several deposits included in the company's resource. Therefore, this PFS and the After-Tax NPV (8%) are using one-third of the company's total 3.02 million ounce resource. Thus, the project has considerable operating leverage and a much longer mine life than eight years if the company can convert some of its vast resources into reserves. Besides, the majority of gold companies in the US use a discount rate of 5% for their NPV, while Bardoc chose to use a more conservative 8% discount rate. When accounting for this, the project is actually quite robust compared to several undeveloped gold projects with studies released in the past year.

(Source: Company Presentation)

From a valuation standpoint, it is surprising to see such a large discrepancy between Bardoc Gold and its peers as Bardoc is currently valued at less than US$30.00/oz based on 1.4 billion shares outstanding, a share price of A$0.09, and US$10 million in cash. Generally, development stage peers in Tier-1 jurisdictions are trading for closer to US$45.00/oz, and well above US$50.00/oz for those in the Feasibility Stage, suggesting that Bardoc is quite undervalued at current levels. However, there are risks to the thesis here, which may account for the discounted valuation.

(Source: Company Presentation)

There are two obvious risks to the Bardoc Gold thesis, with the first being the gold price. While Bardoc's project economics look great at $1,500/oz, they would begin to deteriorate significantly at $1,200/oz gold, so a complete end to this gold bull market would put a massive dent in the investment thesis here. Having said that, this risk is not company-specific, as this would erode the project economics for 90% of undeveloped gold projects worldwide. The company-specific risk to Bardoc, however, is that the company is trading at an enterprise value of US$80 million and is going to need to raise double its current valuation to get the company into production. This is generally not easy, which means that the company may need to get creative with financing, using a combination of dilution, a debt facility, or a stream, by selling some future production at the project. In the latter case, this would increase costs at the mine a little with royalties, so the all-in sustaining costs could drift as high as US$900/oz if forward gold sales were used as a financing option. However, even at US$900/oz, this is still an attractive project as long as gold remains above $1,400/oz.

While Bardoc Gold doesn't come without its risks as it's a speculative name with a sub $100-million market cap, I believe some of these risks are priced in with the company trading for barely US$30.00/oz based on its 3 million ounce resource. The company's recent PFS outlines exceptional economics at a $1,500/oz gold price, and the upfront capital estimate of just US$98 million makes this a project that Bardoc can get into production on its own with creative financing options. Based on the company's very reasonable valuation for a developer, and a solid resource base in a Tier-1 jurisdiction, I see the stock as a speculative buy below A$0.08. Ultimately, I would not be surprised to see the stock trade up as high as A$0.13 in the next 12 months, assuming the gold price stays above $1,600/oz.

Analyst’s Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.