CHRIS JUDD Invest
By Thomas Galanti
Beacon Minerals (BCN) is a gold miner operating out of Kalgoorlie, Western Australia. It’s a short life mine, with an open cut pit expected to cease operation in June 2023 and stockpiles extending to November 2024. Backed by a very technically experienced group of executives in Geoffrey Greenhill and Graham McGarry both with significant holdings in BCN and the recent addition of Jason Bontempo to the board, the gold miner should be well placed to hit its short-term gold production targets at an attractive price per ounce.
The short Life of Mine profile that BCN currently has is a head wind for investors, however it’s market cap of A$106m is also undemanding and if the gold price remains around its current price then BCN’s net cashflows should be greater than its current enterprise value by 2024 when the mine and stockpile processing is currently forecast to wind down (FY21 net cashflow expected to be ~A$40m). The challenge for BCN is to increase the LOM through either drilling success or a corporate deal with either nearby ‘stranded’ ounces or by a larger partner looking to acquire BCN for a cashflow boost.
There’s been some recent promise on the drilling front, BCN recently completed a mineral exploration update on the Black Cat South and Lynx prospects. The Black Cat exploration was “designed to assist with the confidence of the continuity of gold mineralisation within the deposit” and was successful in doing so. Significant findings include 12 meters at 2.11g/t Au from 35 meters and 3 meters at 4.96g/t Au from 48 meters. The Lynx exploration – located 330 meters south of Black Cat South – found significant intercepts of 9 meters at 2.25g/t Au from 32 meters and 4 meters at 1.61g/t Au from 46 meters.
Gold output is expected to be ~ 7,000 oz/qtr. In the September quarter of FY21, production was ramped up coming out of Covid – producing 7,453 oz – exceeding the highest guidance estimates by 10%. Over the three months, the company sold 6,930 oz at an average sale price of A$2,570, receiving A$17.81m in proceeds. Q1FY21 finalised ~ $10m operating cash flow and ~ A$7.8m free cash flow from operations – Beacon’s strongest results in CY21. It’s important to note that their relatively smaller hedged position allowed Beacon to receive a higher average sale price above its larger competitors, receiving a 3% premium per ounce on Northern Star Resources (NST) and 1.4% premium on Evolution Mining (EVN) over the quarter.
If Gold prices remain steady, the 2021 financial year should see the company receive ~ A$74m from the sale of 27.9k ounces. Compared to the A$41m recorded in FY20, the sales receipts estimate indicates a growth of ~ 80% YoY with the approximate cost per ounce in the September quarter at A$953 again showing management’s ability to execute operationally.
The two other possible catalysts that could see BCN increase in attractiveness to investors is a move higher in the gold price or capital management initiatives. It obviously goes without saying the price of gold plays a big role in the profitability and success of a gold mine. However, it plays an even bigger role when the LOM is on a short horizon, given the greater weighting of each cash flow to the end of the mine’s production.
A gold price sensitivity analysis on operating cash flows through FY21 – with a -10% to +10% average sale price – shows relatively strong performance over all three scenarios. The bear scenario indicates a full year operating cash flow of $32m and the bull indicates $48m. So, whilst BCN might be more sensitive to gold price movements over the remaining time horizon, it is far better to be at full production during record high gold prices, than sitting on your hands.
As for capital management initiatives, the above graph shows any of these scenarios leave plenty of room for a dividend. A ~ 0.5c dividend in CY21 could help put the stock on different investors radars while still leaving enough money to commit to BCN’s ongoing drilling initiatives. With the very healthy first quarter results, strong gold price and the expectations for these to be continued, speculation on a generous dividend is warranted.
The current investment landscape is one where narratives trump fundamentals. As Christopher Cole recently put it “in a world of negative real cost of capital, the success of the entrepreneur gravitates towards narrative perpetuation over value creation” – a flows over fundamentals perspective. Should drilling success or a corporate deal arrive, BCN will have a strong narrative to accompany the cash generation which management have already been able to achieve.
Disclaimer: This article should not be construed as investment advice and is for information purposes only. It does not take into account your investment objectives, particular needs or financial situation. Before making an investment in anything, do your own research and contact your investment advisor. Entities associated with Chris Judd Invest hold shares in BCN.