Brightstar Resources Limited [ASX:BTR]
Metals & Mining
A rapidly growing West Australian gold producer
We initiate coverage on Brightstar Resources (ASX: BTR) with a 12-month target price of A$0.051 – representing a 237% upside from the current share price of $0.015. BTR is a gold exploration and development company that owns multiple gold projects in proximity to each other, to the company’s processing plant (currently on care and maintenance), and to the existing infrastructure in the prolific Eastern Goldfields of Western Australia. BTR is currently producing at its Second Fortune Underground Mine located south of the township of Laverton in WA and has recently completed a toll-treating mining joint venture operation at its Selkirk deposit within its Menzies Gold that generated A$13m in profits. The company has a total defined gold resources estimate of 1.45Moz at 1.6g/t and is currently working on completing a feasibility study for the combined development of its multiple gold projects at its Menzies and Laverton Hubs, expected to be completed by the end of CY24.
Poised to become a serious WA gold producer with minimal Capex
Given the ready access to existing infrastructure, an existing processing plant that requires small refurbishment costs as well as other key non-processing infrastructure, we think Brightstar is on a fast track to transition from currently a junior gold producer with modest-scale toll-treating operations to a serious WA gold producer, potentially in the next two years. Brightstar has completed two scooping studies showing a combined NPV8 of A$227m (utilising gold price inputs of A$2,900/oz and A$3,000/oz, significantly below current spot gold price) with a small pre-production Capex of only A$34m. In the meantime, BTR is working on commencing the tolltreating of another one of its deposits at Menzies by the end of CY24.
Our bullish outlook for gold prices remains intact
Gold is an asset known to almost constantly grow in price over the long term as its uses and market desire keep growing, while the fact that it’s an asset that’s scarce limits its supply growth. Gold serves as a hedge against geopolitical risk, with prices rising during political turmoil and it provides a hedge against market risk, often performing well during economic instability. Gold prices surged in 2023 and early 2024 due to economic uncertainties, geopolitical tensions, and central bank purchases. Gold prices are expected to remain resilient in 2024, driven by investor demand, anticipated rate cuts, and geopolitical uncertainties, with a long-term uptrend due to institutional investment growth.
Valuation range of A$0.047–0.054 per share
Using the DCF approach, a discount rate (WACC) of 12.5% and conservative assumptions on gold prices, exchange rates and operating costs, we have valued BTR at A$0.047 per share in a base-case scenario and A$0.054 per share in a bullcase scenario. We have assumed that BTR will successfully raise additional A$17m equity at A$0.02 per share and A$17m debt in FY25 to fund its development projects. The key risks to our investment thesis include commodity price risk, funding risk, execution risk and geological risks.