Breaker’s ‘Colonel’ on being dirt cheap, a takeover stock and Bombora’s upside

Plus, Flanagan outlines Battery Minerals’ low-cost, fast-track route to graphite production and cashflow
8th December 2017
Barry FitzGerald

Breaker Resources’ (BRB) executive chairman Tom Sanders reckons that the 50c stock is dirt cheap.

The “Colonel” said as much when addressing more than 400 investors yesterday at the Brisbane leg of Resources Rising Stars’ “Summer Series”.

There is nothing unusual in that kind of statement being made by a company man, particularly when the company involved is “laying the foundations for a large new greenfields gold mine, 100km from Kalgoorlie”.

That is exactly what Breaker is doing with its Bombora discovery.  But as the Colonel acknowledged with his “dirt cheap”’ comment, there is a bit of emotion around the stock at the moment, as might be expected when a stock that was 80c back in August has become a 50c stock.

The price slump reflects both disappointment and suspicion around Breaker deferring its maiden resource estimate for Bombora from late this year to March next year. The disappointment component is no big deal, but the suspicion component could be if left to fester.

The suspicion goes to the ill-informed whispers in the chat rooms that the delay in the maiden resource estimate is because Bombora is not “hanging together” as the potential multi-million-ounce discovery as originally thought.

While the Colonel wasn’t able to talk numbers ahead of the delayed maiden resource estimate, he was clearly out to shoot down the naysayers at the RRS conference. The stock being dirt cheap was a good start.

Then came the tip that the industry itself is switched on to Bombora’s big time potential. So much so that they have been circling Breaker.

“There are not many gold producers in the country that have not approached us to get involved. (But) at this stage it makes more sense to keep it inside the company and advance it towards production,” the Colonel said.

“All the work we have done indicates this is going to be a large greenfields gold mine, both open pit and underground.’’

That’s all very good but doesn’t get away from the fact that having warmed the market up for the release of a maiden resource estimate by about now, it won’t be hitting the ASX platform until March next year.

It seems Breaker simply got ahead of itself. It generally takes three years to progress from a promising discovery hole to a potentially economic resource. And then half of those discoveries don’t become mines.

Even though there is delay, Breaker’s March release means it has gone for an aggressive two-year timeframe. And in case anyone was in any doubt, the Colonel said that data to hand “indicates a definitive yes, ours will turn in to a mine, in our view”.

“We think we’ve got a great mine in the making here,” he said. The Colonel’s advice to the punters is don’t get stressed out by the delay in the maiden resource anyway.

“It will simply be instalment one. The drill rigs will keep going. And the footprint of the resource drilling is likely to grow.

“This is going to be a high margin producer in the future, in my view. The infill drilling is importantly generating wide and high-grade intersections close to the surface and at depth. It is improving continuity, which equates to mineability, which equates with the ability to monetise this asset.

“We are also starting to identify the mineralisation controls which help us find more gold. Resource drilling will extend well past our maiden resource estimate in March.’’

So the message there is for the market to be patient. Great mines don’t get confirmed overnight.

The question is whether the growth-hungry gold producers circling Breaker will act before the company gets to unveil the full story. The Colonel sees it as a binary situation.

“We will either be taken over or we will turn this in to a high-margin operating mine. There will be a premium in any takeover attempt, but we’re progressing this with a view to mining this,” the Colonel said.

Flanagan buzzes the Sofitel

Every conference needs someone to give proceedings a bit of a buzz. The RRS “Summer Series” got that when executive chairman of Battery Minerals (BAT), David Flanagan, hit the stage at Brisbane’s Sofitel ballroom.

Like the animated battery that buzzes around in the Energizer battery ads, Flanagan got the room excited about the near-term production potential of BAT’s Montepuez graphite project in sunny Mozambique.

Importantly, BAT is not trying to take on the world with its development plans, which is just as well given fellow ASXer Syrah (SYR) is doing just that with its just-started Balama project in the same country.

No, BAT has set out on a pathway of getting into production quickly from an achievable $US42m development producing 50,000 tonnes of graphite concentrate annually – enough to generate $US20m in annual net operating cash flow, based on long-term price forecasts for graphite.

An initial mine life of 10 years is nice to have when the expected payback would be super-fast, with a settling in of the project to be followed by the pursuit of growth at Montepuez, and BAT’s other graphite interests in the country.

Flanagan has been around long enough to carry some victory badges, and some battle scars. And they way he sees it, the mining industry remains a cyclical world. It is best to get into production quickly, or be dead.

The locals are cheering BAT on. Flanagan reckons there were more people dancing at Montepuez than Schoolies Week on his recent visit there to give the locals a progress report.

Back to the $US20m in net operating cash flow (it would be higher if latest graphite prices were plugged in). It is an interesting amount for a company which last traded at 6.2c for a market cap of $47m, against which it is holding cash of $22m.

Hartleys, which has helped with BAT’s recent fund raising, certainly thinks so. In a note out this week its analyst set a 12-month price target of 28c a share. The kicker in that is that Hartleys models BAT as a 1mtpa graphite producer by 2022.

At this stage, Flanagan is talking about the achievable. The growth to major producer status could come later. But there is a wait and see element to all that.   

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