Brightstar Resources Limited [ASX:BTR]
Metals & Mining
On the way to becoming a serious WA gold producer
We upgrade our valuation of Brightstar Resources Ltd (ASX: BTR) to a 12- month target price of A$0.064 – representing a 180% upside from the current share price of $0.023. 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 other existing infrastructure in the prolific Eastern Goldfields of Western Australia. BTR is currently producing gold from its Second Fortune Underground Mine, located south of Laverton in WA, and is preparing to start a number of other mining operations to capitalise on high gold prices. The company has a total defined gold resources estimate of 3Moz at 1.5g/t Au (post Alto acquisition completion) and is currently working on a definitive feasibility study for the combined development of its multiple gold projects at its Menzies and Laverton Hubs, expected to be completed by Q1 CY24.
Set to become a major WA gold producer with low capex requirement
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 scoping 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 assessing the toll-treating of another one of its deposits at Menzies in conjunction with the development of larger-scale operations in CY25.
We maintain our positive outlook for gold prices
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 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$0.062–0.067 per share
To determine our fair valuation of BTR, we used a Sum of the Parts methodology. This includes adding the discounted value of forecasted free cash flows (FCFs) based on two scoping studies BTR completed for developing select deposits in Menzies and Laverton, along with the value of the remaining 2.5Moz Au in defined resources, applying an EV/weighted average resource multiple of A$120/oz gold. We assume BTR will raise an additional A$17 million in equity at A$0.03 per share and secure A$17 million in debt in FY25 to fund its development projects. Key risks to our investment thesis include commodity price fluctuations, funding challenges, execution risk, and geological uncertainties.