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BDG 23.5¢

the case for bendigo mining

  1. Chuck

    12,262 Posts.
    Gold is in a well established bull market and looks set to continue this run for some time if we can go by the length of previous gold runs.

    While companies that are actually producing gold currently can be expected to benefit most from this in the short term, the next group of companies to appreciate in value will be those with a well defined resource that are in a position to commence mining shortly.

    Bendigo mining has long been a discussion point amongst gold enthusiasts on this site. Protagonists for the company point to the 12 million ounce plus potential of the resource and the potential to employ cheap, largely gravity based methods to extract the ore.

    HC members with experience in the mining industry such as TigerTen have expressed the view that most of the resource is inferred and that the project simply doesn't stack up. Clearly such views deserve respect.

    However there are some considerations that perhaps make BDG worth looking at in the current environment of an appreciatinmg gold price.

    The following extract comes from a recent briefing:

    As at 30 June 2003, Bendigo had just over $17 million in available funds and
    funding options for the project will be studied. Harmony Gold of South Africa has
    options to acquire shares to the value of $108 million exercisable by 31 December
    2003 at a strike price of 30 cents. Do you know what Harmony’s intentions are
    and what are your broad funding options?
    Managing Director Doug Buerger
    I’m not in a position to say whether Harmony will exercise their options. All I can
    say is that Harmony remain very keen on the project, they’re aware of what we’re
    doing technically and are helping to advance the project. Our Board considered it
    prudent to look at alternative options, including some debt finance, because we
    can’t just assume that Harmony will exercise their option.

    Bendigo, on the basis of their sampling, have decided to define a resource of sufficient size to justify commencement of production as quickly as possible so that income is derived while resource definintion continues.

    Sampling and exploration work in the Lower S3 reefs is ongoing, with a target Reserve base of
    200,000 ounces gold by December 2003. At the same time Bendigo will complete a feasibility
    study and the design of a plant to treat 300,000 tonnes of ore per annum.
    “The Board of Directors has concluded that grade determination will not improve significantly
    through further sampling studies and that commercial production should commence without delay.
    To that end we are carrying out the planning to support a decision to commit to Stage One
    "Plant design and planning should be completed in December 2003 with full additional permitting in
    place by June 2004.
    "Our target for initial production is the March Quarter of 2005," Mr Buerger said.

    This post by Searay, puts what I consider a reasonable view:

    I take the view that Harmony have staked BDG from an early exploratory stage and have not paid any real premium for the vast potential of our 2nd biggest producing goldfield.No doubt they have paid over the top for Hill 50,etc.and currency has dealt them a blow,but I think their BDG decision will be based on where they see the $A gold price in 3 years time.The scale of BDG,with 12m.oz.resource estimate and exploration upside,is a very different risk to the premium they paid to aggressively acquire existing operations.
    I do not expect them to flag a decision until as late as possible,into the Dec.option time and I think they probably appreciated, the dumping of the Unisuper parcel as timely for their purpose.Other majors have their eye on this one,as I am sure the biggest shareholder is aware.There are few target plays of this scale available to the majors and much of the risk has been taken out of BDG.

    December is around the corner. The immediate upside should Harmony exercise their option is 30 cents. Technically, BDG has been building a base around the 20-21 cent level and seems to have minimal downside risk even if Harmony decide not to exercise as I believe that the market has already factored in that Harmony will walk away.

    As gold appreciates BDG must be seen as a lower and lower risk.

    Comments appreciated.

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