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Blackham now cashed up, debt-free with solid turnaround strategy in place
Mining
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Special Report: Blackham Resources now has plenty of cash in the bank, no debt, a highly skilled new management team and a clear plan to leverage the Wiluna gold operation’s multi-million-ounce potential.
The new team behind Blackham Resources (ASX:BLK) has wasted no time in turning this once struggling junior’s fortunes around and it is already being reflected in the balance sheet.
The company received a strong response from shareholders to its recent recapitalisation, which saw it raise $52m in equity funding from some heavy hitting international investors.
In addition to the $52m equity contribution, the company is continuing discussions with Swiss-based trading company Mercuria regarding the quantum and shape of a potential project loan facility. The company previously received from Mercuria a non-binding indicative term sheet for a $40m project loan facility.
“The balance sheet repair was critical and that’s finished now,” executive chairman Milan Jerkovic told Stockhead.
“What we’ve got to do going forward is continue to strengthen the balance sheet and bring more liquidity into the company to realise our aspirations and our plans.”
The key to Blackham’s turnaround is implementing a solid mine plan and building an inventory of longer dated resources.
And the beauty of the Wiluna mine is that it already has a multi-million-ounce resource, but that has only been drilled down to 500m – there remains significant potential at depth as demonstrated by recent high-grade drilling results.
To give an indication of the size potential, the mine has already produced more than 4 million ounces of gold and has a resource of 6.4 million ounces, with real potential for multi million ounces still to be found under the head frame.
In addition to the Wiluna Mine, there’s also three other known systems within the landholding – with a potentially large Wiluna lookalike among them.
“Currently there’s five drills on site at the moment doing resource conversion and reserve development so that we can turn what is already out there in the public arena, a 6.4-million-ounce stated inventory of gold, into a real mine plan and a sustainable cash flow that we can demonstrate to the market,” Jerkovic said.
“The main thing we’re doing in the next two years, is use the current free milling cash flow to drill out longer dated resources, rather than doing small pits that are only mineable for four or five months.
“We are also building enough stockpiles so when there is weather interruptions or other issues we have a three-month buffer.
“The intention is to drill out resources and convert them to reserves that go out two years or more ahead of our mining plan. A lot of that work was done in that last quarter.”
A major reserve drilling program is already underway to upgrade the stage-one mine plan by converting the inferred resource ounces to the higher confidence indicated or measured categories.
And there is no shortage of exploration potential. The company controls over 1,600 square kilometres of the Yilgarn Craton in the Northern Goldfields of WA. The Yilgarn Craton has a historic and current gold endowment of over 380 million ounces, making it one of most prolific gold regions in the world.
“Having 1,600 square kilometres of ground under single company ownership has never occurred before. If you overlaid that down around Leonora or Kalgoorlie, you’d probably have 20 owners drilling different bits of it,” he noted.
“We have consolidated the northern goldfields for the first time in history. This is very significant for a company of our size and very exciting considering the vast discovery potential. It points to Wiluna being a very long term, significant operation.”
Another step in Blackham’s plan is to start processing the sulphides into a gold concentrate, a move that will raise annual production to 110,000-120,000 oz.
UK-based corporate finance and investment firm Arlington Group Asset Management says successful execution of Blackham’s growth strategy will provide a platform to identify the next 10 million ounces of gold, which it believes remains undiscovered within the giant Wiluna system.
Strong in-house skills
This time around, management is ensuring Blackham has the required level of in-house expertise to execute on its strategy.
Led by Jerkovic, himself is a qualified geologist with more than three decades of experience in the mining industry, having overseen the development of several projects in that time.
He was the founding chairman of Straits Asia Resources, spent 10 years as CEO of Straits Resources and has held positions with WMC, BHP, Nord Pacific, Hargraves, Tritton, Metals X (ASX:MLX) and Geopacific.
Jerkovic is particularly skilled in building resource companies from fledging, under financed geological opportunities to fully engineered, built operations and capitalised companies.
“I’ve built up fairly big mining teams before. When I was managing Straits Resources, I had three listed companies under me plus six operating mines and two development projects,” he said.
“Having your own core skills in house is important. Sure, you use external resources where you need them, but if you’re a mining company you have to be able to manage the core skills yourself and keep that experience in house; I do truly believe that is a factor to success.”
Neil Meadows is executive director operations and also has over 30 years of experience as a qualified metallurgist in the mining and processing fields.
His most recent role was chief operating officer (COO) for European Metals Holdings (ASX:EMH). Meadows has also previously served as COO for Karara Mining and Queensland Nickel, as well as headed IMX Resources as its managing director.
However, Meadows’ big claim to fame is having overseen the development of Australia’s largest nickel and cobalt mine, Murrin Murrin, for Glencore as the general manager of operations for the project.
Further bolstering Blackham’s geology experience is Cain Fogarty, who serves as general manager geology and business development.
Fogarty’s 20 years of experience mainly centres on near-mine reserve growth, greenfield exploration and acquisitions.
Prior to joining Blackham, he worked on the successful exploration and development of Equinox Mineral’s copper projects in Zambia, with CSA Global on the Caijiaying zinc-gold mine in China, and with Canadian heavyweight Barrick Gold on near-mine reserve development at its WA gold mines.
Rounding out the geology team is Travis Craig (exploration manager) – formerly head of geology for Echo Resources (ASX:EAR), Graham de la Mare (chief resource geologist), Graham Younge (underground manager) – also from Echo Resources previously and Gold Road Resources (ASX:GOR) and Peter Johansen (chief mine geologist).
Other members of the executive management team includes Anthony Rechichi (CFO, Jim Malone (GM-investor relations) and Wayne Foote, who recently joined the company after having recently worked for Echo Resources and Gold Road Resources.
“We’ve attracted some really high calibre professionals who see the geological opportunity and the regional scale of this asset being potentially world class,” Jerkovic said.
Undervalued but so much potential
Arlington said in a research report earlier this year that Blackham and its Wiluna mine might be about to “awaken from a multi-decade slumber and join its richly clothed Australian peers including Kirkland Lake’s Fosterville mine, Northern Star’s Jundee and Bellevue Gold”.
Northern Star and Kirkland Lake both took historic mines, Jundee and Fosterville, and reinvigorated them by deeper drilling, creating huge value for shareholders and a blueprint for Blackham to do the same at Wiluna.
“I think if you compared us today with no debt, with a significant cash balance, with more money coming in from a debt facility and a plan that’s going to deliver a significant production profile, clearly we are positioned for a re-rating,” Jerkovic said.
“And then geologically if we keep drilling with five or six rigs, we’re going to have some pretty exciting news coming through.”
Blackham wants to continue with stable production over the next 18 to 24 months, while it repositions itself to be able to undertake concentrate production for supply to its offtake partners.
Blackham’s stage-one expansion project has been significantly progressed via concentrate offtake agreements secured with Trafigura and LSX listed, A$15 billion-dollar market capped Polymetal Group.
The company recently locked in agreements to supply 70 per cent of stage-one concentrate production, or 122,500 dry tonnes of gold concentrate (whichever is greater) to Polymetal Group, and to supply 30 per cent of stage-one concentrate production (for the first three years) to Trafigura.
