Kristie Batten: Shades of Northern Star in Brightstar gold story

One of Australia’s top mining journalists, Kristie Batten writes for Stockhead every week in her regular column placing a watchful eye on the movers and shakers of the small cap resources scene.

Brightstar Resources (ASX:BTR) is emerging as a force to be reckoned with in the Western Australian gold space.

Geologist and former Canaccord Genuity investment banker Alex Rovira joined the company as managing director last year when it had a market capitalisation of just $7 million.

Since then, a number of savvy deals and a buildout of the board and management team, as well as the share register, has seen the company’s market cap swell to more than $170 million, including a 40% rise in October alone.

One fan of the company is Hedley Widdup’s Lion Selection Group (ASX:LSX), which has invested $7.8 million this year and holds 7.9%.

“Brightstar’s management is the closest we’ve seen to Evolution Mining (ASX:EVN) or Northern Star Resources (ASX:NST) in the formative days of those companies,” Widdup said.

Northern Star was a 2c shell company with just $124,000 cash when, under young mining engineer Bill Beament, it did a $27 million deal in 2010 to acquire the operating Paulsens gold mine.

A successful turnaround followed and the cashflow allowed Northern Star to go on an acquisition spree, acquiring four mines from the majors in 2013 and 2014.

While Beament has moved on, the company’s valuation hit a record $20 billion last week.

Meanwhile, Jake Klein oversaw the creation of Evolution Mining in 2011 via the merger of his Conquest Mining with Catalpa Resources, which was cornerstoned by Newcrest Mining.

Since then, the company has grown via seven acquisitions and is now worth $10 billion.

Today, the two miners remain a benchmark of value creation for the gold sector and many juniors have tried to emulate their success.

Buying up resources

Brightstar’s transformation kicked off last year with a merger with Kingwest Resources, combining the Laverton and Menzies gold projects in Western Australia’s Goldfields.

The company celebrated its first gold pour in March via the Selkirk joint venture with contractor BML Ventures.

The modest open pit generated more than $6m of free cashflow for Brightstar with ore processed through Genesis Minerals’ Gwalia plant.

Brightstar then acquired the operating Second Fortune underground gold mine via the takeover of unlisted Linden Gold Alliance.

The company mined 777oz grading 3.4g/t during the September quarter, which is awaiting processing at Gwalia.

It hopes to bring the Fish mine, acquired in the Linden takeover, into production next year.

In early August, Brightstar announced its largest deal yet, a merger with Alto Metals (ASX:AME) and the $14m acquisition of Gateway Mining’s (ASX:GML) Montague project.

“Brightstar ticks a lot of boxes for the right resources in the right areas,” Widdup said.

“It’s not just cashflow potential – there’s big exploration potential at Sandstone.”

Sandstone to be accelerated

The deal with Alto is due to close later this month, pending shareholder approval.

It will take Brightstar’s resource base from 2Moz to 3Moz.

“This is the largest gold resource endowment of any junior explorer or developer on the ASX outside of De Grey Mining (ASX:DEG),” Rovira told the South-West Connect ASX Showcase in Busselton last month.

“In the Eastern Goldfields, we’ve got the largest resource that isn’t currently a mid-tier producer.”

Widdup believes the consolidated Sandstone project has the potential to host 3-4Moz in its own right.

Rovira said the district had scale potential but was “significantly underexplored and undercapitalised”.

The plan is to drill 50,000m at Sandstone next year aiming to get 70% of the resource into the indicated category.

That will enable a scoping study on the combined Alto and Gateway ground by mid-2025.

More deals to be done

It was revealed last week that Brightstar made a non-binding offer to Aurumin (ASX:AUN) over a joint venture on Aurumin’s Sandstone ground.

Brightstar confirmed it was continuing to assess “accretive and synergistic M&A opportunities in the Eastern Goldfields”.

“All of the M&A that we’ve done to date in the last 18 months – and I think there’s been five or six transactions – has really been predicated by picking up assets and projects that were undervalued and have not had the spend on them,” Rovira said.

Rovira said the Alto and Gateway deals cost Brightstar around $35 per resource ounce, compared to the recent industry average of $106/oz.

“We are building out a team and an asset base that we’re going to monetise in the short term,” he said.

“Gold price is at an all-time high so it’s a great time to be building a gold business.”

At the same time, Rovira didn’t rule out Brightstar becoming a target for a larger peer.

“The way I look at this business is we’re an existing producer with cashflow, we’ve got near-term development and we’ve got scale,” he said.

“We’ve got something of size where ultimately mid-tiers are looking for growth opportunities – Brightstar potentially fits that narrative as an M&A candidate but outside of that we’ve got assets that can get developed and monetised ourselves.”

At Stockhead, we tell it like it is. While Brightstar Resources is a Stockhead advertiser, it did not sponsor this article.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.