Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF), Bringing High-Grade, Low-Cost Gold Project to Life
With potential recession fears recently being on the rise, a leading Wall Street research firm is pointing investors towards gold and gold mining stocks in order to reduce risk.[1]
Widely recognized research and brokerage firm, Bernstein Research is advocating an urgent focus on the precious metal and its producers.
Sending out a note titled, “A strong case for holding gold”, the firm points to a material shift in geopolitical risk, and a near-record build up in government debt—each further enhancing the case for gold.
Bernstein isn’t the only major voice singing the praises of gold stock potential. After giving a site tour of its Cerro Blanco gold project, Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) has received coverage from all 7 analysts it invited to see its project up close.
Perhaps the biggest endorsement on the project comes from highly successful Swedish-Canadian businessman Lukas Lundin and the Lundin Family Trust, which is the company’s biggest major shareholder—at 36% ownership.
With over ~$200 million worth of work done on the project to-date, Bluestone Resources Inc.’s (TSX.V:BSR) (OTC:BBSRF) economics on the project are second to none—Its margins are among the highest in the industry.
Acquired for $20 million, and now with a feasibility study in hand that asserts a first quartile all-in sustaining cash cost (AISC) of $579/oz Au, the Cerro Blanco mine is projected to yield more free cash flow in the first year of production than the company’s current market cap of CAD $89 million.
The project already licensed, here are 5 reasons why Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) is likely to be a success.
Significant Free Cash Flow in First Year of Production
As construction is 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.[2]
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 in the world.
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.
COMPARABLE GOLD PROJECTS
Given previous successes with the development and sale of companies such as Kaminak Gold (acquired by Goldcorp) and Northern Empire (acquired by Coeur), the Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) Management team has a track record worth looking at.
Outside of the company’s history, it’s worth looking at some comparables in the gold space. Here are some companies that could be seen as Bluestone Resources Inc. (TSX.V:BSR) (OTC:BBSRF) peers either currently, or in the future:
Coeur Mining, Inc. (NYSE:CDE) 
Market Cap: USD $1.050 billion
Recent Headline: Couer Completes Acquisition of Northern Empire Resources
Last August, Coeur Mining announced the acquisition of Northern Empire Resources. Key to the acquisition was Northern Empire’s principal asset, the Sterling Gold Project, located in Nevada. The asset consists of four high-grade heap-leachable deposits with a total inferred gold resource of approximately 709,000 oz Au, averaging 2.23 g/t Au. The high-grade Sterling gold deposit is a fully-permitted, past-producing mine with near-term, low-cost, low-capital production potential. Coeur acquired Northern Empire for a cost of approximately USD $90 million. With its own high-grade, low-cost mine project, Bluestone Resources (TSX.V:BSR) (OTC:BBSRF) has an M+I resource of over 1.2 million oz Au, with a LOM reserve grade of 8.5 g/t at Cerro Blanco—an asset acquired at a cost of only $20 million, with ~$230 million in work already done on site.
Osisko Mining Inc. (TSX:OSK) (OTC:OBNNF) 
Market Cap: CAD $870 million
Recent Headline: Osisko Windfall Initial Bulk Sample Returns 9.7 g/t Au Head Grade
At the close of 2018, Osisko Mining reported preliminary results from a bulk sample taken at its Windfall Lake deposit in Quebec, with an average head grade of 9.7 g/t Au and 5.5 g/g Ag. The Windfall Lake deposit is situated within Quebec’s storied Abitibi region, between Val-d’Or and Chibougamau. The deposit is one of the highest grade, resource-stage gold projects in Canada. Windfall Lake currently has 2.87 million tonnes grading 8.17 g/t Au for 754,000 oz Au in the indicated resource category, and an additional 2.36 million oz Au in the inferred category. Bluestone Resources (TSX.V:BSR) (OTC:BBSRF) currently has a resource of 1.11 million oz Au coming from 3.426 million tonnes at 10.0 g/t Au, and an M+I resource of over 1.2 million ounces Au.
Lumina Gold Corp. (TSX.V:LUM) (OTC:LMGDF) 
Market Cap: CAD $164.286 million
Recent Headline: Lumina Gold Announces Second Mineral Deposit at Cangrejos
Lumina Gold is primarily focused on the Cangrejos Gold-Copper Project located in El Oro Province, southwest Ecuador. The company is in the process of resource expansion an infill drilling to support a Pre-Feasibility Study, with 8.5 million oz Au at a grade of 0.65 g/t Au. While a different size and at a far lower grade, both the Cangrejos and Cerro Blanco projects have required skillful regional expertise. However, Bluestone Resources (TSX.V:BSR) (OTC:BBSRF) is significantly further along in the development of Cerro Blanco, due to it already having ~$230 million in spending done on the project, and a Feasibility Study in hand, with an expectation for construction in 2019, and production in 2020.
Atlantic Gold Corporation (TSX.V:AGB) (OTC:SPVEF) 
Market Cap: CAD $490.218 million
Recent Headline: Atlantic Gold Announces Additional Drill Results from Resource Extension Drilling at the Cochrane Hill Gold Deposit
Atlantic Gold is primarily focused on growing gold production in Nova Scotia. It currently boasts an MRC phase one open pit gold mine, which began commercial production in March 2018, and its phase two Life of Mine Expansion, which the company hopes will ramp up gold production to more than 200,000 oz Au per year (up from a current Phase 1 82,000-90,000 oz Au per year). At an AISC between US $540-588/oz, Atlantic Gold’s project is in the industry’s lowest quartile of cash and AISC. Bluestone Resources (TSX.V:BSR) (OTC:BBSRF) with its Cerro Blanco is pegged to have a comparably low AISC of $579/oz, and annual gold production of 146,000 oz Au.
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. His experience lends well to the task of steering the ship through the waters of Guatemala’s mining regulatory and community challenges.
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.
