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Blackham Resources Receives Buy Recommendation, $0.40 Target Price

Blackham Resources (ASX:BLK) has received a Buy recommendation with a $0.40 price target from Melbourne-based securities advisory firm BW Equities.

Blackham last traded at $0.14.

It noted the company commenced drilling at the Matilda mine as initiation of a 13 month plan to establish a free milling gold Reserve and recommence production at the Wiluna Processing Facility.

The following is an extract from the report.

Investment Recommendation

Our price target reflects a 300% premium to the last traded price and is based on an NPV derived from our DCF model of the Matilda Gold Project and a comparison with similar projects and recent market acquisitions.

The price target reflects the risks associated with a project of this nature and does not include the considerable upside of a successful extension of mine life beyond 5 years.

As Blackham meets the target as set out in the 13 month plan to re-starting production at the Wiluna Processing Facility we would expect the share price to progressively appreciate towards the target price.

Recent market action, including the overbid by Northern Star of Metals X's proposal to purchase Tanami Gold's Central Desert Project suggest that corporate activity is increasing for assets that can be readily brought into production. This could flow through to a rapid increase in the Blackham share price.

Blackham Exploration and Evaluation

Since acquiring the Matilda Gold Project in 2011, Blackham has completed 27,000 metres of drilling together with a re-evaluation of the significant geological database, resulting in a large increase in the resource base. Blackham has updated resource estimates for each of the main deposits, namely Matilda, Williamson, Regent and Galaxy.

Running in parallel to the resource work has been metallurgical test work at Matilda (to PFS standard) and at Galaxy.

An initial mining scoping study was completed and combined with early process engineering for the design of a new free-milling plant at the proposed Matilda mine, Blackham did not proceed with this plan.

Toll treating of the Matilda ore at the WPF was also considered when it was still operated by Apex Minerals NL ("Apex") but no agreement was reached before Apex went into administration.

In March 2014 Blackham purchased the Wiluna Mine tenements, processing plant and infrastructure.

This allowed consolidation with their Matilda Project and Blackham has now developed a plan to bring the WPF back into production with a primary focus on the free milling ores.

Blackham has assembled a strong development team with significant operational experience including at the WPF.

The recent equity capital raising of $3 million allows Blackham to move forward on its plan to restart production at the Matilda Gold Project. Studies are already well advanced and Blackham has announced a fast track 13 month timetable to production.

Matilda Gold Project Resources

Blackham's Matilda Gold Project covers 780 square kilometres of tenements surrounding the WPF and has a total Resource of 44 million tonnes at 3.3g/t gold for 4.7 million ounces of gold.

In December 2014, Blackham outlined a mineral inventory of 5Mt at 2.8g/t for 454,000 ounces of free milling gold which is sufficient for the first four years of production. All the prospects being evaluated are within 20 kilometres of the WPF.

In January 2015 in conjunction with the recent capital raising the company outlined a series of exploration targets from which they expect to define a larger free milling Inferred gold resource which will then be upgraded to support a minimum five-year mine life to enable the re-start of operations at the WPF.

Research Comment: Blackham has a rich portfolio of projects ranging from fully developed mines to highly prospective exploration targets supported by an operational processing facility with flexibility to treat free milling oxide and fresh as well as refractory ores.

With a total resource of 4.7 million ounces Blackham is in a unique position to prioritise the best ore sources to feed a restart of gold production at the WPF in line with their announced timetable. The chart below indicates the priority targets.

Matilda Mine

Drilling has now commenced on a 4,000 metres drill program at Matilda Mine designed to follow up on last year's drilling that intersected down plunge extensions of mineralisation, none of which is included in the current Matilda Mine Resources. Drilling will evaluate the:

- M4 northern and southern extensions;
- M2 northern extensions;
- M1 west and Central lode northern extensions; and
- Further definition of lodes linking M1/M3/M4 and M2 sub pits.

Research Comment: Results from the drilling program should push the proposed M4 open pit north by 300metres from the previously optimised pit shown above. Drilling from last year is yet to be included in the published resource which we expect can increase the M4 open pit resource by 75kozs and potentially more if mining can link the M4 and M2 pits.

Additional resources are also anticipated at M1. The Matilda mine will underpin early operations for Blackham.

Williamson Mine

Located some 20 kilometres south of the WPF, was developed and mined by Agincourt in 2005-2006. Williamson is part of a system that includes the Carroll and Prior prospects on parallel and linking structures.

It is a wide lower grade structure with an existing free milling Resource of 6.3Mt at 1.7g/t for 350,000 ounces of gold with potential to supply low cost open pit feed to the WPF.

Mineralisation is known to extend along the structure for at least 1.5 kilometres south of the pit and includes some high grade intersections. Blackham has a resource target of 70,000 to 290,000 ounces at Williamson.

At the nearby Carroll and Prior, mineralisation has been identified over some 3 kilometres also comprising free milling multiple stacked gold lodes. Blackham has a target resource at Carroll and Prior of 230,000 to 640,000 ounces.

Research comment: although there is much more work to be done at the Williamson Mine and related prospects the presence of high-grade shoots and wide zones of structurally controlled mineralisation over a considerable strike distance suggests that additional resources in the mid-range of Blackham's target is readily achievable.

Underground Quartz Reefs

Priority areas for high-grade underground ore are the Golden Age, Republic and Brothers gold quartz reefs.

Golden Age was last mined systematically by Agincourt and has a fully developed resource of 490,000 at 7.4g/t for 120,000ozs.

The Republic and Brothers quartz reefs lie respectively above and below the Golden Age Reef but are not yet fully delineated. Both offer significant upside with easy access from the existing Golden Age mine development.

Blackham have an exploration target of 65kozs to 320kozs in the Republic Reef and has initial plans to drill the Republic reef from surface.

Research Comment: Blackham is planning drilling from surface in the current program. We anticipate that an additional 6-8 new drill holes from surface across the projected outline of the reef shown in the adjoining diagram could bring the Republic Reef to an Inferred Resource containing some 200,000 ounces at close to 7g/t gold.


We base our valuation of Blackham on both a Discounted Cash Flow (NYSE:DCF) valuation and comparable values of recent market transactions to put the value into a market context.

Prior to completion by Blackham of a PFS a DCF valuation contains many undemonstrated assumptions, nevertheless because of the initial work done by Blackham on the Matilda mine and the operating history at Wiluna it provides a useful guide to current value and potential future value. We have applied the DCF approach for two scenarios.

The first scenario is Blackham meeting its announced timetable and commencing production in H2 2016 with a 5 Year mine life. NPV is estimated at $105 million.

The second is to look at the improved valuation from an expansion of the mine life to 10 years. On this basis the NPV (8%) valuation for Blackham is $186m

For the purpose of an initial target price only the first scenario is used, whilst the second scenario demonstrates the upside potential when Blackham meets its objective under the first scenario.

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