Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) has top analysts raving about their Cerro Blanco Gold Project
Gold has long been viewed as a strong investment in times of economic uncertainty … which means Bluestone Resources Inc.’s (TSX.V:BSR) (OTC:BBSRF) recent unveiling of its Cerro
Blanco Gold Project couldn’t have come at a better time.
According to 7 leading industry analyst reports Bluestone Resources Inc.’s (TSX.V:BSR) (OTC:BBSRF) at CAD $1.25 is a significantly undervalued gold stock, with all analysts reports predicting an average target price of CAD $2.64.
In fact, with recession fears soaring, at least one leading Wall Street research firm is now actively pointing investors toward gold and gold mining stocks in order to reduce risk.
In a note entitled, “A Strong Case for Holding Gold,” widely recognized research and brokerage firm, Bernstein Research, advocates an urgent focus on the precious metal and its producers.
Central banks around the world have upped their spending on gold to the highest level in almost three years, according to the World Gold Council (WGC). Central bank gold reserves grew 148.4t in Q3, up 22% y-o-y. This is the highest level of net purchases since 2015, both quarterly and year-to-date, and notable due to a greater number of buyers.
Using the current spot price of $1,223 per troy ounce, the gold purchases by the banks added up to a $5.82 billion spending splurge on the precious metal.
January-to-September 2018 saw 264 tonnes added to official-sector gold holdings says a note from Australia-based financial group Macquarie, “by far the most at this stage of the year of any period in the last six years.”
Now, as geopolitical risk rises and government debt reaches near record highs, comes news that Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) has acquired the Cerro Blanco mine in Guatemala. This mine is currently recognized as one of the highest grade undeveloped gold projects in the world.
In fact, the mine, which was acquired for $20 million, comes with a feasibility study that asserts a first quartile all-in sustaining cash cost (AISC) of $579/oz Au and a projected yield of more free cash flow in the first year of production than Bluestone Resources Inc.’s (TSX.V:BSR) (OTC:BBSRF) current market cap of CAD $89 million.
With an average head grade of 8.5 g/t Au, the Cerro Blanco project is also expected to yield an average annual production of 146,000 oz Au per year over the first three years.
With figures like these it’s no wonder that Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) has received coverage from all 7 analysts it invited to see its project up close or that highly successful Swedish-Canadian businessman Lukas Lundin and the Lundin Family Trust are now the company’s biggest major shareholder—at 36% ownership.
Let’s take a closer, more in-depth look at a few of the major factors that could soon allow Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) to become a real stand out in the growing gold mining industry.
Cerro Blanco will generate more cash flow than its current market cap in the first year of production
Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) peers have a market cap over pre-tax cash flow that averages a whopping 486%, while Bluestone’s is only at 57%. The free cash flow that the Cerro Blanco project will generate is nearly half of Lundin Gold and Torex Gold’s, but their market capitalization is 14.7 and 16.3 times higher.
Analysts are seeing this major gap between the larger gold producers and have their average price target set to C$2.64 with Cormark and Cannacord targeting it at $3.00 and above.
|
Gold Project |
Market Cap (US$M) |
Pre-tax Cash Flow based on US$1,250/oz (US$M) |
Market Cap /Pre-tax Cash Flow |
Prod. (Au koz/yr) |
AISC (US$/oz) |
|
BlueStone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) |
$59 M |
$103 M* |
57% |
146 |
$545 |
|
Lundin Gold (TSX: LUG) |
$866 M |
$205 M |
422% |
336 |
$583 |
|
Torex Gold Resources Inc. (TSX: TXG) |
$962 M |
$198 M |
486% |
430 |
$932 |
|
Leagold Mining Corp. |
$404 M |
$134 M |
301% |
516 |
$990 |
|
Atlantic Gold Corporation |
$368 M |
$72 M |
511% |
104 |
$623 |
|
Equinox Gold Corp. |
$470 M |
$66 M |
712% |
250 |
$986 |
* Pre-tax cash flow is calculated as the difference between the AISC and $1,250/oz gold, multiplied by the avg. annual production profile. AISC as defined per World Gold Council guidelines. Bluestone CF is based on the first 3 years of production
Source: BlueStone Resources Inc. | Investor Deck
Significant Free Cash Flow in First Year of Production
Average over the first 3 years of production
With construction expected to commence pending a decision upon securing bank funding by Q4 2019, production would be expected to begin in early 2021—less than 2 years away.
From the feasibility study, it’s been derived to have a 34% IRR at a 2-year payback, using a price of $1,250/oz Au.
Using those metrics, it’s now expected that Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) should have bank funding ready by Q4 to start construction at the permitted asset.
Over the course of the mine’s initially projected 8-year life, the Cerro Blanco project is expected to yield an average annual production of 146,000 oz Au per year in the first three years and LOM average annual production of 113,000 oz Au; average annual free cash flow of $90 million in the first three years of production; and LOM free cash flow of $538 million.
Solid Reputation and Coverage
With as much as there is now out publicly to know about Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF), insiders are now aggressively buying up the stock. The company’s management and the board have also been aggressive buyers at these levels.
Confidence in the operation is significant, with all 7 analysts currently covering the company giving positive ratings, with valuations on average of over $1 more per share than the current share price.
As well, now that a solid feasibility study has been delivered, it’s expected that bank funding should likely be secured by Q4 2019.
Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) remains a popular developer, due to its attractive valuation (0.4x NAV, EV of $59 million), quality asset (>100,000 oz/yr mine plan, low AISC of $579/oz), with significant infrastructure already in place (including 3.2 km of underground development), and a world-class Lundin-calibre management team at the helm.
Extremely High-Grade with Robust Economics
Among its peers, the Cerro Blanco asset in Guatemala is one of the highest grade undeveloped gold projects.
With an average head grade of 8.5 g/t Au, the Cerro Blanco project is expected to yield an average annual production of 146,000 oz Au per year over the first three years.
With an AISC of $579/oz Au, the Cerro Blanco is far below the 2017 global average AISC of $878/oz Au.
Using a $1,250/oz gold deck, the Cerro Blanco will generate a 34% post-tax IRR and payback all capex in 2.1 years. The NPV5% of $241 million, coupled with a DFS and a very detailed picture of geology, analysts believe this is a very fundable mine, which should be funded in 2019.
Compelling Exploration Potential
As part of the sustained effort to improve upon the economics given in the Feasibility Study, Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) has engaged additional drilling to expand the asset. 
Infill results from the Cerro Blanco drill program are aimed to convert 360,000 oz Au of inferred material—which was excluded from the recent DFS.
The impact of converting such a resource, all located adjacent to already planned and costed infrastructure gives Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) another potential ace up its sleeve—to add high-margin revenue for minimal new capex.
It’s been estimated that an additional 250,000 oz Au could add more than $200 million in cash flow.
Elite Calibre Management Team with Multiple Wins
“We believe the strong Management team (ex-Kaminak, ex-OceanaGold) will be able to navigate through challenges and bring the quality low capex asset into production, driving a multiple re-rating.” – Tyler Breytenback, Cormack Securities
The Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) Management team has been referred to as “Lundin-calibre” in analyst reports, due to their previous successes that involve the magnate. However, it’s the wins themselves from the company’s core leaders that speak for themselves. Executive Chairman John Robins and President and CEO Darren Klinck are joined by a very deep roster, fully capable of bringing the Cerro Blanco project to fruition.
President and CEO Darren Klinck has built a reputation of successful mergers and acquisitions, most recently as Executive Vice President and Head of Corporate Development for OceanaGold. Core to his role with OceanaGold was his oversight of project teams managing exploration, CSR and community engagement programs, as well as extensive government relations activities.
Instrumental to acquiring the company’s flagship project was Executive Chairman John Robins’ previous success as the founder and Chairman of Kaminak Gold. Robins was instrumental in Kaminak’s sale to Goldcorp Inc. for $520 million in 2016.
It was this established relationship which led to Bluestone Resources acquiring the Cerro Blanco for an astoundingly low $20 million price tag—given that there had already been $230 million spent on the project. However, given that Goldcorp underwent some internal changes, the Cerro Blanco project didn’t fit the Goldcorp direction going forward, but became the perfect fit for Bluestone Resources.
Klinck and Robins are joined by a team with significant international exploration, production, and mine-building experience.
Also with experience stretching back to Goldcorp is Vice President Project Development Jeff Reinson. His last 15 years have been spent in senior project and engineering management roles with Goldcorp, AngloGold, Ashanti Limited, Newmont Mining, and Rio Tingo. Most recently, he was Project Director for Goldcorp, where he was leading the safe construction of Pensquito’s +$750 million tailings storage facility expansion, a head leach facility expansion feasibility study, and a large groundwater remediation project.
Vice President of Exploration David Cass has spent most of his 25-year career focused in Latin America, with 15 years coming with Anglo American plc, where he held multiple positions in jurisdictions such as South and Central America, and Mexico. Amidst that tenure, Cass spent four years as Senior Geologist in Peru.
Vice President Operations David Gunning brings over 35 years of international operational experience in underground mining, processing and exploration, including his last 8 years as Chief Operating Officer for Starcore International Mines in charge of the San Martin gold mine in central Mexico.
Investors Should Pay Attention to Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF)
Top-Class Cash Flow Generation in Year One:
With an incredibly reasonable AISC of $579/oz, puts Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) in the lowest quartile in the industry. From the project’s Feasibility Study, the project has an IRR of 34% at a ~2-year payback. Using a price of $1,250/oz Au, the project is expected to yield an average annual free cash flow of $90 million and a LOM free cash flow of $538 million.
Solid Reputation and Proven Management Team:
With major shareholders that include Lukas Lundin and Goldcorp, and a lineup of 7 analysts actively covering the company, Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) has established a healthy reputation. Given the past successes of key management profiles, such as Executive Chairman Jeff Robins (Kaminak Gold) and President & CEO Darren Klinck (OceanaGold), the expertise of the company has given confidence to analysts and investors alike.
Extremely High-Grade with Robust Economics:
With an average head grade of 8.5 g/t Au, the Cerro Blanco project is expected to yield an average annual production of 146,000 oz Au. Perhaps most importantly, the project is low-cost, giving Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) an AISC of $579/oz Au, which is far below the 2017 global average AISC of $878/oz Au.
Compelling Exploration Potential:
Excluded from the recent DFS were an additional 360,000 oz Au, which Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) intends to unlock through infill drilling on Cerro Blanco. It has been estimated that the addition of those 360,000 oz Au could add more than $200 million in cash flow.
