Brightstar to churn out $153m free cash in eight years

A Brightstar Resources scoping study has revealed the company will punch out an EBITDA of $153 million over an eight-year mine life at its dual Menzies and Laverton gold projects in Western Australia.

The study, released today, outlines an initial target of 5.28 million tonnes at 2 grams per tonne gold for 322,617 ounces and an extraordinary pre-tax internal rate of return (IRR) of 79 per cent. It predicts being able to pay back a total capital outlay of $170.2 million in 1.5 years, based on 70 per cent of the tonnages being classified in the measured and indicated categories.

Management estimates it will need $22.4 million for pre-production capital, a further $94.4 million to grow the operation and then a final $53.3 million to sustain it. All-in sustaining costs (AISC) were estimated at $2041 per gold ounce.

The scoping study shows a net present value (NPV) of about $103 million at a gold price of $2900 per gold ounce. Using today’s Australian gold price that hovered above $3000 an ounce, the NPV would increase to $128 million with an IRR of a whopping 106 per cent.

And the numbers have an intriguing edge, with Brightstar spelling out that its staged mine plan will benefit strongly from early predicted cashflow from Menzies, which will be earmarked to “organically” fund the restart of the Laverton operation. Management anticipated first gold from Menzies within six months of the start of mining and from Laverton within nine months of beginning upgrades for its processing plant.

Brightstar Resources managing director Alex Rovira said: “The staged mined development has been optimised to minimise up-front capital costs, utilising operational cash flow to organically fund the refurbishment of the Laverton processing facility to minimise equity dilution and limit onerous debt and/or hedging exposure associated with large capex builds magnifying commissioning risks. The mine plan has been designed to minimise risks associated with ramp up and deliver a profitable gold producer in WA with significant upside to expand on the production profile and mine life.”

Mr Rovira said the study set out a low-key pathway to production that would see the company become a “meaningful” producer in WA’s renowned Goldfields region. He said exploration efforts would continue across its portfolio in a bid to add more ounces to the mine plan, while a prefeasibility study was progressing.

Brightstar picked up the operation that forms part of the Menzies gold project in May after completing a successful merger with Kingwest Resources. The move was designed to consolidate the gold assets of each company and bring their combined operations a step closer to production through a scheme of arrangements that included Brightstar acquiring 100 per cent of the shares in Kingwest.

The company’s latest drilling program was comprised of nine RC holes. Management says its first objective was to begin infill drilling in the Delta zone, the northernmost area of its Cork Tree Well mineralised system within the Laverton project. It is the highest-grade zone defined to date and has not been subject to historical mining.

Brightstar is optimistic that its infill drilling at Delta within the recently-defined Cork Tree Well mineral resource estimate (MRE) will provide a better understanding on the structures controlling the higher-grade mineralisation.

It believes the gold mineralisation is linked to brittle-ductile deformation, such as is reported elsewhere in the Laverton district.

Now Brightstar has some decent numbers to play with, and with a prefeasibility study in motion, there seems little doubt that the company will immediately knuckle down further to see just how far the metrics will stretch.

Is your ASX-listed company doing something interesting? Contact: matt.birney@businessnews.com.au