By Tom Winnifrith | Tuesday 31 December 2019
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
During the first seven days of Christmas each of the team will serve up two share tips (buys or sells). I will serve up 4. That makes 20 in total. Enjoy our share tips of the year 2020. Fourteenth up is a BUY from Steve Moore who owns no shares in the company below.
My first share tip of the year for 2020 was a stock I consider undervalued given its sector, outlook, financial position and dividend. This second looks more speculative, but I consider this more than compensated for by the upside potential
Bluebird Merchant Ventures (BMV) describes itself as a “Korean focused gold development group”. I tend to prefer the cash flows of production to more speculative exploration and development but November saw a “Gubong Permit Received” announcement from the company and December “Kochang Permit Approval”, including from CEO Colin Patterson; "Despite getting our two permits faster than any other country I know of it has been a lengthier process than we first anticipated. This is now over and we are excited by the prospect of achieving gold production in the coming year. We trust that our shareholders will enjoy a revaluation of the company as we move forward”.
That was with the shares at 1.75p. They have responded to a now 2.5p offer price, which capitalises the company at £9.2 million. That compares to these 50:50 joint venture projects over an initial 3 years seeing “estimated average cash cost per ounce (C1 level) is USD 576 per ounce… gold production… largely grow organically from 10,000 to 30,000 ounces per annum”.
With gold currently above $1,500 and with what still looks a positive outlook given the global macroeconomic picture, a margin of even $600 per ounce sees an annual profit of $6 million (currently circa £4.6 million) for the joint venture even on 10,000 ounces of production. There is also seen to be clear further expansion potential, with also the latter announcement including; “Commencing next year, Bluebird will start an in-depth feasibility to determine the optimum size for expansion beyond 2022. This will include on and near mine exploration, JORC resource determination. The main targets for this program will be the deepening of both mines”.
Of course, even with a potential very short in this industry timeline helped by these being formerly operating mines, there is still much which needs to be delivered to get from permitting to net cash generative production. This includes more than $9 million of investment being noted during the initial 3 year period. However, it is added the bulk of this should be able to be delivered from cash flow from production, with “the cost of the initial production phase to the joint venture is USD 2.2 million. Bluebird is actively having discussions with regards to non-dilutive debt funding”.
At this stage, there is still thus a clear speculative element here. However, with the funding requirement looking modest compared to the gold production opportunity, there looks reason for optimism that production will be delivered in 2020 – and then the significant net cash generation potential compared to anywhere around current valuation levels comes very much into view. They make this my second selection here for 2020; BUY.
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