EQUITIES BW RESEARCH 27 FEBRUARY 2015 Blackham Resources Ltd (BLK) | Initiation Coverage Rating: Matilda Gold Project , a re-emerging BUY mining district 1 Target Price : $0.40 Investment Summary Projected Return: Blackham Resources has commenced drilling at the Matilda mine as 300% initiation of a 13 month plan to establish a free milling gold Reserve and 1 recommence production at the Wiluna Processing Facility. Underpinned by 12 month target a large tenement position and sizeable gold resources Blackham has the ability to emerge in 2016 as a producer of over 100,000 ozs of gold per year with a mine life in excess of ten years. Company Statistics Investment Highlights Share Price (AUD$) 0.135 Market Cap (AUD$) 24.0 Enterprise Value (AUD$) 21.0 Purchase of the Wiluna Mine and processing facility allowed Issued Shares (mil) 177.9 consolidation of the region under single ownership Options (mil) Tenements of 780km2 surrounding the Wiluna Processing Facility (unlisted) 20.3 with a total gold resource of 4.7million oz Cash 3.0 13 month time line to re-establish >100,000ozpa gold production Debt nil All proposed mining operations within 20km of the Wiluna Processing Facility. Low capital requirement to re-start gold EV/Resource ounce $4.45 production Drilling underway to confirm 5 year Reserve with Initial focus on Earnings Summary free milling gold ore at the Matilda Mine FY Yr. End 2015e 2016e 2017e 2018e High grade underground quartz reef deposits will provide Revenue ($AU) 0 0 132 167 additional low cost ounces EBITDA ($AU) N/A N/A 57 70 Potential to quickly expand gold Reserves for mine life of more Net Income than ten years N/A N/A 36.7 45.0 ($AU) EV/EBITDA 0.37 0.30 Investment Recommendation Initiate with a BUY Rating and a $0.40 price target. Share Price Our price target reflects a 300% premium to the last traded price and is based on an NPV derived from our DCF model of the Matilda Gold Project and a comparison with similar projects and recent market acquisitions. The price target reflects the risks associated with a project of this nature and does not include the considerable upside of a successful extension of mine life beyond 5 years. As Blackham meets the target as set out in the 13 month plan to re-starting production at the Wiluna Processing Facility we would expect the share price to progressively appreciate towards the target price. Company Description Recent market action, including the overbid by Northern Star of Metals X’s Blackham Resources Ltd is a WA gold exploration proposal to purchase Tanami Gold’s Central Desert Project suggest that and development company undertaking feasibility corporate activity is increasing for assets that can be readily brought into studies at its Matilda Gold Project to supply ore to production. This could flow through to a rapid increase in the Blackham recommence operations at the Wiluna Processing share price. Facility. Analyst Chris Bain, MAusIMM, MAICD 61 3 9602 4807 [email protected] Disclosure: BW Equities advise that they and persons associated with them may have an interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages in connection with the making of a recommendation or a dealing by a client in these securities or by seeking to do business with companies covered in this report. Investors should consider investment risks and conflicts highlighted at the end of this report and not only consider this report in making an investment decision. Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015 Wiluna District Mining History Gold mining in the Wiluna district has a long history with three eras of production. Discovered in 1896 and worked until 1912, then reopened in 1931 and worked until 1945, producing a reported two million ounces, predominantly from the underground East and West Lodes. Modern exploitation began in the 1980s with Barrack Mines reprocessing high grade tailings and mining oxide open pit resources. Asarco Gold, identified the Bulletin deposit together with underground refractory resources at Creek Shear and Happy Jack and constructed a BIOX® treatment facility to recover the gold. To the south of the Wiluna mining centre, the Matilda Gold Mine (previously named Mt Wilkinson and Wiluna South) was operated by Chevron Exploration in the late 1980s and by Eon Metals in the early 1990s. During this period it produced 2.2Mt @ 2.6g/t Au for 181,000oz of gold. During that period the Matilda Mine had a processing facility, however, it was removed from site at the end of Eon’s tenure. Between 1992 and 1996 Asarco mined some 1.5mt of ore from Matilda, treating it at the Wiluna plant to produce 117,200 ounces of gold. There has been no production from the Matilda mine since 1996. Wiluna historic production – 1897 to 2003 In November 2011, Blackham acquired the Matilda Mine and surrounding tenements together with the Williamson Mine in a package of 500km2 of tenements virtually surrounding the Apex Minerals owned and then operating Wiluna Mine. Then in 2014, Blackham purchased the Wiluna mine and processing plant from the liquidators of Apex Minerals bringing the broader Wiluna district back into single ownership. The Wiluna Processing Facility (WPF) comprises a 1.3Mtpa processing plant with two milling circuits, one configured for oxide ore and one for harder underground ore together capable of at least 100kozpa gold production. The plant includes a Biox circuit for treating refractory ores. Also included is a gas power station with diesel backup, permitted borefields and infrastructure, a 350 person village, sealed airstrip and roads. Significant underground development and infrastructure is already in place as are operating approvals and licenses. Page 1 Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015 The ownership history of the Matilda and Wiluna gold projects over the last 30 years is summarised below. Dates of Ownership Company May 1984 to January 1991 Barrack Mines January 1991 to January 1994 Asarco Gold January 1994 to December 1997 Wiluna Mines December 1997 to April 2000 Great Central Mines April 2000 to February 2002 Normandy Mining February 2002 to December 2003 New mont Australia December 2003 to April 2007 Agincourt Resources Apr 2007 to July 2007 Wiluna, July 2011 Matilda Oxiana Limited (merged into Oz Minerals) July 2007 to March 2014 (Wiluna Gold Mine) Apex Minerals NL July 2011 to Nov 2011 (Matilda Mine) Kimba Resources Limited Nov 2011 to present (Matilda Mine) Blackham Resources Limited March 2014 to present (Wiluna Gold Mine) Blackham Resources Limited Geology of the Wiluna district The Matilda Gold Project, in the northern Goldfields region of Western Australia, is located at the northern extremity of the Archean Norseman-Wiluna greenstone belt. Kalgoorlie some 500km to the south lies on the same greenstone belt. At Wiluna, the gold deposits are within a series of very low grade metamorphosed mafic and ultra-mafic lava flows, Individually the gold lodes are controlled by the Wiluna strike slip fault system with mineralisation on dilational jogs, divergent bends and splays with ore shoots plunging moderately to steeply south. Fault hosted ore breccias, net veined breccias and brecciated veins are important for gold deposition. The fault hosted mineralisation contains varying levels of sulphides including pyrite-arsenopyrite and stibnite, with gold occurring as minute inclusions within the arsenopyrite and stibnite, hence the refractory nature of the ore. More broadly in the district there are a series of quartz reef trends: predominant northwest (stratigraphy parallel) reefs, and minor north- northwest and east-west reefs. The quartz reefs formed prior to the main refractory gold event and have been affected to varying degrees by that late-stage fault mineralising event. Around the Matilda mine the major ore source is the gold reefs in which pyrite is the dominant sulphide with gold occurring on the sulphide crystal boundaries and consequently it is generally free milling. Despite Wiluna’s long production history, these quartz reef systems have had very little systematic exploration in modern times. Page 2 Blackham Resources Ltd (ASX:BLK) | Initiation Coverage 27 February 2015 Blackham Exploration and Evaluation Since acquiring the Matilda Gold Project in 2011, Blackham has completed 27,000m of drilling together with a re- evaluation of the significant geological database, resulting in a large increase in the resource base. Blackham has updated resource estimates for each of the main deposits, namely Matilda, Williamson, Regent and Galaxy. Running in parallel to the resource work has been metallurgical test work at Matilda (to PFS standard) and at Galaxy. An initial mining scoping study was completed and combined with early process engineering for the design of a new free-milling plant at the proposed Matilda mine, Blackham did not proceed with this plan. Toll treating of the Matilda ore at the WPF was also considered when it was still operated by Apex Minerals NL (“Apex”) but no agreement was reached before Apex went into administration. In March 2014 Blackham purchased the Wiluna Mine tenements, processing plant and infrastructure. This allowed consolidation with their Matilda Project and Blackham has now developed a plan to bring the WPF back into production with a primary focus on the free milling ores. Blackham has assembled a strong development team with significant operational experience including at the WPF. The recent equity capital raising of $3m allows Blackham to move forward on its plan to restart production at the Matilda Gold Project. Studies are already well advanced and Blackham has announced a fast track 13 month timetable to production. Matilda Gold Project Resources Blackham’s Matilda Gold Project covers 780km2 of tenements surrounding the WPF and has a total Resource of 44mt @3.3g/t gold for 4.7million ounces of gold.