By Dr. Michael Green

Bluebird Merchant Ventures has been able to announce that it has gained 100% ownership of the Gubong and Kochang gold mines in South Korea. This has happened by BMV acquiring the 50% remaining stake from its from ex-joint venture partner Southern Gold (SAU).

For this 50% stake, Bluebird will be issuing SAU with up to 200 million BMV shares at 3.6p per share. Initially, the company is issuing SAU with 50 million shares and has the option to pay US$7.5 million in cash, or part in cash, if it is more advantageous than issuing the balance of the consideration shares. Doing that would require the publication of a prospectus that could take six months.

The acquisition sum was determined by an Independent Expert based on assessing the projected cash flow forecasts at a gold price of US$1,440, using a 15% discount rate and then further risking this number by 50%. SAU’s 50% stake in the JV was deemed to be worth half that figure and was further reduced by 10%, giving a figure of US$9.945 million (c.£7 million). All these calculations are nothing new as they were announced in late-November 2020.

On this latest move, Colin Patterson, CEO, pointed out that “I am pleased that we have finally waded through the lengthy legal structure and wording of the various documents and delighted that at a pre-deal market capitalization of £13 million the Company has just doubled the assets of the business for a cost of approximately £7 million. Now that all ownership issues have been resolved and funding is in place the BMV team can move on with construction; although Covid restrictions will slow down our efforts we do have plans to start construction preparatory tasks within the next couple of months. I welcome SAU onto our share register. The Board considers this as a highly positive step that SAU with an excellent understanding and knowledge of the assets’ potential have opted to be fellow shareholders in BMV.”

In a parallel announcement, Southern Gold’s MD Simon Mitchell has commented that “The BMV shareholding will be a very valuable equity interest and I expect it to significantly increase in value as BMV advances the Kochang and Gubong projects towards their stated near-term objective of gold and silver production. as a new and significant shareholder of BMV, our current intent is not to sell small parcels of shares in the market, which would be detrimental to the share price, but to allow the company to grow and advance into its next stage of development.”

The outlook for BMV does seem to be looking brighter and brighter. The funding hurdle for getting into gold production has already been resolved as the company has negotiated a gold loan for a minimum of US$5 million up to a maximum of US$20 million. Bluebird will repay this debt in gold out of production and get a 20% discount to the gold price based on the gold price at the time of delivery. Already, BMV has received funding from the gold loan, enabling progress on the ground in South Korea which should allow the team to move ahead with construction. 

This level of funding should get Gubong and Kochang into production in the short-term as well as allowing BMV to meet its goal of increasing production to 100,000 ounces of gold per annum. Even better, there is no timescale for debt repayment. Investors can breathe a sigh of relief as this funding should allow Bluebird to achieve gold production without needing an equity placing to fund the construction phase.  

Gold production in South Korea is set to start within the next 12 months. The upcoming newsflow should include further funding from the Korea financiers and commencement of construction. This is expected over the short term – so we are talking about weeks not months. That is the benefit about 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.

We believe Bluebird is a highly compelling gold play with a commitment to provide a decent pipeline of news to keep investors fully informed. Management has extensive experience of bringing old mines back on stream with powerful economics due to the attractively lower costs of refurbishing an old mine compared with building a new one. At the same time, no amount of advanced exploration and drilling can ever provide the level of knowledge and comfort that the data from the historic mining of a deposit provides.

Using a flat gold price of US$1,775 per ounce, we have 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 have included all of SAU’s 200 million shares) we get a figure of 16.72p which have adopted as our new target price. With the shares currently trading at 3.90p, we are happy to reconfirm our Conviction Buy stance.

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