Cashed up MHM Metals (ASX:MHM) has entered the Western Australian gold sector with a binding agreement with Stone Resources (ASX:SHK) to develop the Brightstar Gold Project located in the major gold bearing Laverton region.
Intriguingly, the $1.1 billion capped Regis Resources (ASX:RRL) is active to the north of the Brightstar leases with its emerging Garden Gully project discovered and being developed as a second mine by Regis.
While Goldfields' Granny Smith deposit is 20 kilometres away and the district also has the Sunrise Dam and Wallaby gold projects - over 27 million ounces in total.
With $5 million in the bank, MHM will acquire a 50% interest in Brightstar taking full advantage of the considerable investment dollars previous owners have already spent on Brightstar.
However, MHM is also up for an R&D grant submitted in 2015 so cash reserves could increase further.
MHM will gain a 740,000 ounce 2012 JORC gold resource and a gold treatment plant that should enable earlier cash flows to be generated.
Brightstar's deposits run on a strike length of more than 110 kilometres north and east of Laverton.
The Brightstar Gold project covers an area in excess of 300 square kilometres and includes the Alpha, Beta, Gamma, Ben Hur, King of Creation and Cork Tree Well gold deposits.
For partner Stone Resources the deal neatly provides immediate funding from MHM and an operator to develop Brightstar into a gold producing asset.
MHM will earn an initial 50% interest through spending A$7.5m development capital on the project and can move to 80% ownership with an additional investment.
Critically, the deal also includes an existing 350ktpa plant at site, plus all infrastructures such as power gen-sets, laboratory, camp accommodation and assorted mining equipment as part of the deal.
For a company with a market cap of $3.7 million, MHM is trading under cash backing; the JV is immediately valuation accretive for MHM. This acquisition provides the catalyst and path for value uplift for shareholders.
The Brightstar deal transforms MHM into the gold developer ranks where WA gold developers and producers trade at high market valuations. The lower AUD is a windfall for WA goldies, already benefitting from falling operating and capital costs and many are banking $500+/oz margins.
MHM is likely to review the data set at Brightstar and look for a near term resource target of 1 million ounces of gold. There is likely to be significant upside on the current resource base given the meaty strike length of more than 110km.
Regis Resources has been getting some excellent results just north of Brightstar, providing optimism on exploration upside.
With about $5m cash reserves, MHM does not have to go to market, an advantage in this market. If successful on a gaining a $2.9m R&D grant submitted, then the current under-valuation becomes extreme at a share price of just $0.025.
The 350ktpa gold treatment plant is understood to be in good nick, providing a road to production and fast cashflow for MHM which could be expanded over time.
In all this is a game changer transaction and new direction for MHM, bringing local WA operating personnel and experience to tap a Brightstar.