By Dr. Michael Green

Bluebird Merchant Ventures’ shareholders awoke to some tremendous news this morning. We all know that the company is in the midst of re-opening historic gold mines in South Korea, with all eyes on the deal which will take BMV’s stake in these gold mines from 50% to 100%. On top of this, Bluebird’s 100% stake in the Batangas Gold Project in the Philippines has now come back into play.

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 the Batangas Gold Project (BGP) was the flagship project. It is 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 BGP 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 began 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 BTG was good for potentially US$20 million of tax losses.

Time is a great healer. Fast forward four years and now with a far higher gold price, BMV has received communication that there is local support to re-start the project. BGP has two Mineral Production Sharing Agreement permits that, alongside two further permits, will allow the mines to operate.  In the announcement this morning management pointed out that, when local support is formalised, the prospects of being able to make progress on the ground should be materially enhanced.

Likely future steps at this project would seem to be gaining local government endorsement and then obtaining the final permits required.  Once local government endorsement is gained, BMV would probably look to sell or joint venture the project to a local mining group who would finance it.

At the time Colin Patterson, CEO, was quick to point out that “…It is an exciting time for our company and the team is eager to start construction at the Korean projects.  It is also a most welcome and unexpected surprise that our original project in the Philippines will now increase in value for our shareholders.”

Let’s talk about value. Looking at some conservative ballpark figures we have used the sort of valuation that Conroy Gold & Natural Resources (LSE:CGNR) is awarded on its JORC compliant resources of £9.31 (US$12.00) per ounce. On that basis, BMV’s JORC compliant resource of 440,000 ounces of gold would be worth £4.10 million. On a per share basis that would be 1.06p based on the number of shares currently in issue (388,032,022) or 0.97p based on the number of shares on a fully diluted basis (421,451,481).

Today’s announcement also brought news that the acquisition process of 100% of the South Korean projects by Bluebird from Southern Gold (SAU), its joint venture partner, is progressing. An Independent Expert is expected to be nominated shortly under the terms of the JV, who will then make a value determination within 30 days.

As we have written before, circumstances have led to BMV getting the chance to own a 100% interest. The company’s offer to its joint venture partner Southern Gold to acquire their 50% interest in the Gubong and Kochang projects was rejected 10 days ago. This offer was determined by a qualified expert who made a valuation based on the appropriate methodologies under the VALMIN Code 2015. 

The VALMIN Code establishes standards of best practice for the technical assessment and valuation of mineral and petroleum assets and securities by geologists involved in the preparation of independent expert’s reports. It is designed to fit within the Australian regulatory framework and can be seen as a companion to the JORC Code. Like JORC is for resources, it is the VALMIN Code that professionals rely upon for technical assessments and valuations of mineral assets.

So it has got to be pointed out that the independent expert is most likely going to be using the VALMIN Code in making a valuation – we cannot think that this valuation can be wildly different to that which BMV’s expert has come out with. Investors should not be worried, as the VALMIN Code methodologies do not take into account the market capitalisation or the share price of a company. The VALMIN Code seems to be a lot less generous than stock market valuations.

With a 100% interest in Gubong and Kochang projects under its belt, the scene would be set for BMV to become a potentially industry-leading gold producer in  South Korea where it is well-positioned to be a 100,000oz per annum, low cost gold producer. Add into the mix the additional surprise potential of BGP and it all looks to be becoming a bit interesting.

With the share price sitting at 4.05p, we are happy to reaffirm our Conviction Buy stance.

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Bluebird Merchant Ventures is a research client of Align Research. Align Research owns shares in Bluebird Merchant Ventures and is bound to the company’s dealing policy ensuring open and adequate disclosure. Full details can be found on our website here (“Legals”).

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