THE INSIDE STORY: Just as a week is a long time in football, Blackham Resources (ASX: BLK) has shown the industry a quarter can be a long time in mining.
If Blackham Resources were to be compared to the fortunes of an Australian Rules Football club it would most likely be Richmond.
Its supporters are fanatical and are quick to let those in charge feel their wrath when things are down and are equally magnanimous when their team starts performing to their liking.
Blackham disappointed its followers last year when its 2017 June Quarterly reported the company had missed guidance of 17000 to 22000 ounces of gold at its 6.5 million ounce Wiluna gold operations in Western Australia, producing an sub-performance 15700 ounces.
This result had followed a lower return from the March 2017 quarter of 14900 ounce.
Blackham provided several reasons for the performances, including wet weather, wall slippages and lower than expected underground grades for missing expectations, however it also signalled a return to form was imminent, flagging a likely increase in grade profile, which would generate better production and Free Cash Flow from the September 2017 quarter.
Although gold production was still down for the September 2017 quarter at 15,619 ounces, there was a noticeable improvement in mill feed due to mining of bigger and higher-grade proportions of Golden Age underground ore.
Mill feed grade was weighed down by 39 per cent of the ore milled during the quarter being from lower grade stockpiles (0.7g/t) and access to a substantial portion of higher-grade M4 open pit ore was delayed into the December 2017 quarter due to the pit wall instability which was rectified during the quarter.
Blackham started showing a return to form during the December 2017 quarter when it reported that extensive waste stripping it had carried out during the calendar year 2017 had provided access to high-grade zones in both the Galaxy and M4 pits, in November and December respectively that would provide up to six months of access to consistent high-grade ore.
Mining at M4 and Galaxy is expected to underpin strong operational cashflows for Blackham in 2018.
Both got off to flying starts during December 2017 with 137000 tonnes of high-grade ore at 1.6 grams per tonne gold mined from the M4 and Galaxy pits and a further 7,887 ounces of gold mined from the two open pits in December.
When Blackham released its quarterly in January the two pits were already ahead of previous results with 11410 ounces of gold mined, more than the entire September quarter.
By kicking off mining of these high-grade M4 and Galaxy pits zones, Blackham began to build high-grade stockpiles, which was the first significant high-grade stockpile build-up the company had achieved since March 2017.
Blackham Resources started its return to Brownlow Medal-form in 2018 producing a strong March quarter at Wiliuna that increased gold production by 38 per cent from the previous December quarter including new monthly record gold production achieved in each successive month of the quarter.
In January Blackham produced 6,498 ounces of gold that was achieved along with a record low monthly All In Sustaining Costs (AISC) of $1,158 per ounce, which compared well to an average realised gold price during the month of $1,663 per ounce, demonstrating a clear step change in economics for the operation.
February’s numbers saw further improvement thanks to a low open pit mining stripping ratio of 1.5:1 (waste:ore).
The company chalked up another record month of gold production, combing with the low stripping ratio to set a record low monthly AISC for February of $912 per ounce with an average realised gold price during the month of $1,670 per ounce.
Rainfall and lightning events during the month threatened to destabilise mining operations once again, however this time the company was able to see them off and increased the high-grade stockpiles to 144000 tonnes at 1.7g/t gold – more than a month’s production.
“February’s operational results demonstrate a continued improvement of the turnaround that commenced in December 2017,” Blackham Resources executive chairman Milan Jerkovic said.
“Record production and further reduced costs from the operation underpinned another month of strong cashflow, whilst maintaining stockpiles with increased grades.”
Blackham completed a premiership quarter with another gold production record for the month of March pumping out 7419 ounces of gold, an impressive 11 per cent increase on February.
AISC were reduced in the March quarter to $1092 per ounce, representing a substantial 42 per cent decrease on the December of $1882 per ounce.
An average realised gold price of $1669 per ounce was achieved for the quarter and the company holds gold forward sales contracts of 29,417 ounces at $1725 per ounce over the next nine months representing approximately 50 per cent of targeted production over that period.
“The March operational results demonstrate a continuation of the step change in project economics that commenced in December 2017,” Jerkovic said.
“Record production and significantly reduced costs underpinned a quarter of strong operational cashflows, whilst building stockpiles.”
As at 31 March 2018, Blackham had improved its net debt position to $10.4 million, a much healthier position than at 31 December 2017 where it sat at $27.4 million.
The company also held cash and bullion of $29.6 million and secured interest-bearing debt of $40 million.
A $14.3 million term loan previously due on 31 December 2017 was refinanced in mid Jan’18.
Blackham’s improved performance was recognised in the form of very strong shareholder support for an underwritten Entitlement Offer that raised approximately $35.9 million.
“The funds raised from the Entitlement Offer puts Blackham in a strong position to execute on its free milling mine plan, as well as to advance exploration focussed on growing our free milling mine life,” Jerkovic said.
“As demonstrated by the strength of our operations in December 2017 and January 2018, the company is at an exciting stage, with 2018 likely to be a transformational year of strong operational and financial performance.”
During March, Blackham’s exploration team drilled a program consisting 84 RC holes that was focused on delineating further free milling open pit reserves over the four kilometres of strike at the Wiluna mine.
This drilling was undertaken to follow up on a program of 77,000m drilling completed during the 2017 financial year.
That drilling had established probable reserves of 669,000 ounces (7.7 million tonnes at 2.7g/t gold), which includes oxide and transitional reserves of 144,000 ounces (2.5 million tonnes at 1.8g/t gold).
The drilling is focused on free milling ores that can be processed through the current plant.
The company has revised Wiluna mining and metallurgical studies that are well advanced in this area following the Wiluna Expansion PFS published in August 2017.
The Expansion PFS confirmed the robust economics for a plus-200,000 ounces per annum long mine life operation.
Key outcomes were life-of-mine AISC of $1,058 per ounce (US$822/oz), IRR 123 per cent and NPV of $360 million before tax at $1600 per ounce gold price.
Blackham is now re-estimating the open pit oxide reserves around the Wiluna mine site as the Blackham management team believes the Wiluna free milling ores are an obvious feed stock for the current operating mill and has a plan to fast track mining approvals.
Blackham Resources Limited (ASX: BLK)
… The Short Story
Level 2, 38 Richardson St
West Perth WA 6005
Ph: +61 8 9322 6418
Milan Jerkovic, Bryan Dixon, Greg Miles, Greg Fitzgerald