By Dr. Michael Green

There was welcome news this morning from the South-Korean gold company Bluebird Merchant Ventures. Some of BMV’s announcements can be real crackers, just like this latest epistle which brings investors up to speed with developments concerning the Batangas Gold Project and the gold operations in South Korea.

Let’s look at the Batangas Gold Project in the Philippines first. Here the board was able to report that discussions have started with potential partners to develop this high-grade gold project. This move comes after the company seems to have received positive feedback following its submission to the Department of Environment and Natural Resources for a two-year extension to the exploration period to its current licence.

BMV has a 25-year Mineral Production Sharing Agreement (MPSA) for the Lobo area of Batangas, where the current period of exploration needs to be extended. Apparently, this needs both an Exploration Work Programme and an Environmental Work Programme focusing on the potential for underground mining at Lobo to be submitted. Once this has been granted, the pathway to a production decision would become clear.

The Directors firmly believe that Lobo remains highly prospective and there is significant potential for underground mining operations. Here, the mineral resources are associated with a linear, steeply dipping, epithermal lode with high grade ‘shoots’ of mineralisation.  The previous partner published an initial Probable JORC Compliant Ore Reserve of 171,000 tons at 6.6 g/t for 36,000 ounces of gold excluding silver credits. This was based primarily on the South West Breccia (SWB) area of the licences, which would probably be mined in the first 18 months of production.

But there is far more to high-grade Batangas. That’s because the 1,160-hectare licence area sports multiple epithermal and high-grade targets that have already been identified for resource expansion. These include the SWB extension, where testing of the footwall lode produced results including 2.1m @14.4g/t gold and 3m @12.1g/t, West Drift, which already has an Indicated and Inferred resource of 350,000t @ 3 g/t gold. That’s not to mention the Signal, Camo, Pica and Ulupong areas.

Meanwhile in South Korea, the hot news is that BMV is making good progress towards recommencing operations at the historic Kochang Gold and Silver Mine and Gubong Gold Mine. The message coming out loud and clear this morning is that these mines have cumulative estimated target recoverable resources of something like 1.5 million ounces of gold.

That resource estimate is based on a thorough analysis not only of the data from the historical operators and the governments’ Korea Resources Corporation (KORES) but also work undertaken by BMV. This week, the team is in South Korea to finalise the plan to fulfil the qualifying spend of US$160K in accordance with the 20-year mining licence terms. This commitment will largely be satisfied in buying equipment required to continue the underground development and exploration at the two mines.

At the time, BMV’s CEO Colin Patterson was able to point out that “The potential of Batangas is being recognised in the Philippines and we are progressing avenues to advance the project, which we believe has excellent underground production potential.  With the granting of the licencing extension, we will have a defined path to a production decision.  In the meantime, we continue to advance our primary South Korean activities, including bringing the historically producing Kochang and Gubong mines back into production.  In the immediate term, we have to spend c.US$160K to satisfy the licence commitments, which our team will focus on this week as they are back in-county.”

On the main play, Colin went on to comment that “The opportunity in South Korea is fantastic. We have carried out extensive work including geological mapping, sampling, orebody quantification, metallurgical testing and verification of extensive historical data to ascertain the extent of the opportunity.  The plan remains achieving proof-of-concept gold production at Kochang, followed by production commencement of 5,000oz Au rising steadily pa to 10,000oz.  Cash proceeds will contribute to ramping up gold production at Kochang and commencing production at Gubong with a medium-term target of 50,000oz Au rising to a targeted 100,000oz per annum.  Our core skills are successfully reopening historic goldmines.  The resource model and work conducted points to a low capital and operating cost environment, which translates to the Korean projects having major potential to produce high margin production leading to what I hope will be a dramatic re-rating of the Company’s value.”

The truth is that in the past, BMV was led a merry old dance in the Philippines. The back story here is that when the company started trading on the LSE in May 2016, BGP was the flagship project. This was an advanced gold exploration asset with a total JORC compliant resource of 440,000 ounces, including a maiden ore reserve of 128,000 ounces (including silver credits). This all came from a Pre-Feasibility Study by the previous joint venture partner company Red Mountain Mining and was based on a gold price of US$1,250 per ounce. The company had an interest in Batangas through a joint venture agreement with the owner and had the option to acquire an increased interest.

However, within months of the IPO, a general election in the Philippines led to the appointment of an anti-mining government and so Bluebird begun to look at other opportunities elsewhere in East Asia. The changes in the Philippines subsequently gave Bluebird the opportunity to acquire a 100% interest in BGP for 1.25 million shares and a 1% Net Smelter Royalty in December 2016. The property was on care and maintenance and over its life exploration expenditure has totalled US$20 million. So as far as most were concerned Batangas was good for potentially US$20 million of tax losses.

Time is a great healer. Fast forward six years and now we have a far higher gold price and the advent of a more favourable policy in the Philippines towards responsible mining. All of this has set the scene for BMV to revive this gold project where JV talks have already begun and this morning we have been reminded has a clear pathway to the production decision.

It is important to realise that this is an unexpected opportunity and that the company remains fully focused on its South Korean projects where it is bringing old gold mines back to life. There are big benefits to gain from bringing old gold mines back to life. Not only is it far quicker but also a lot cheaper to rehabilitate old gold mines than fund exploration. These old gold mines at Gubong and Kochang ceased production a couple of decades ago due to a low gold price – under US$140/oz.

By any yardstick we believe this stock is seriously undervalued. In June 2021, we revisited our target price for the stock. Using a flat gold price of US$1775 per ounce, we determined a Net Present Value using a 12% discount rate of US$302.56 million. To be more conservative to allow for project execution risk, we have discounted this NPV by 50% resulting in a figure of US$151.28 million. This equates to 23.28p per share based on the number of shares in issue (467,482,119). Based on the number of shares on a fully diluted basis (650,901,578 where we included all of SAU’s 200 million shares) gave a figure of 16.72p which we adopted as our new target price.

We look forward to getting the opportunity to revisit our target price for Bluebird. But it is important to realise that this figure does not contain any contribution from BGP. We are happy to reconfirm our Conviction Buy stance at the current price of 2.40p.

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