Bellevue Gold is the most attractive gold development story in Canaccord's coverage universe

Bellevue Gold Ltd (ASX:BGL) recently touched a record high of $1.22 after metallurgical test work at its namesake project in Western Australia generated recoveries averaging 97.8% across the multiple lodes. These results were achieved using conventional gravity and leaching processes and standard reagents, confirming the ability to extract gold using conventional gravity and CIL processing flowsheets. Bellevue managing director Steve Parsons said the metallurgical results joined the growing list of strong results being generated across the board at Bellevue. Broker Canaccord Genuity has reiterated its SPEC BUY recommendation for Bellevue and increased the price target to $1.45 from $1.35. The following is an extract from Canaccord’s research update on Bellevue: Ticking all the boxes BGL has provided a positive update across a number of key deliverables that continue to validate the project as an exciting, low capex development proposition, in our view. Exceptional metallurgical test results. Metallurgical test work has confirmed recoveries of 97.8% via conventional processing, with the gravity-only component recovery from all lodes ranging from an exceptional 73.6% to 91.7% (industry standard <40%). Given the operating history of the mine, metallurgical outcomes were always low risk, in our view, but confirming such high recoveries across all newly discovered lodes is a pleasing result. Importantly, the test work was completed at a 106 micron grind size (75 micron standard), and with cyanide consumption at ~0.5kg/t (industry standard 0.5-1 kg/t), we see good scope for potential capex and opex savings in the grinding and leaching circuits. In our model we assume LOM recoveries of 96%, which at this stage we have left unchanged in the interest of conservatism. Underground drilling expected to start in DecQ'20. Dewatering of the old Bellevue decline is continuing at pace, and geotechnical, visual inspections and ground support test work programs have been completed in preparation for re-entry to the underground network. Tenders for the underground rehabilitation (CG expect only roof meshing will be required) and development requirements are being finalised, and BGL has flagged that underground drilling is expected to begin in the DecQ’20. This is the first time the company has put underground drilling on a timeline, and we highlight that it will allow BGL to drill at twice the rate and at a significantly lower cost compared to drilling from the surface. As part of the update on the underground drilling, the company also provided a 3D LIDAR scan that highlights the competency of the surrounding ground conditions (video link here). Maiden Indicated Resource expected shortly. BGL's maiden Indicated Resource is on track for release in “coming weeks”. As a reminder, we are conservatively expecting the maiden Indicated Resource estimate to be 550-650koz at 8-10g/t, and we continue to see good scope for this to grow to ~1Moz by the end of 2020 (total current Inferred Resource 2.2Moz at 11.3g/t). In our view, the Indicated Resource will form the basis of initial Mining Studies that will build momentum over the 2H 2020, noting that, as part of today's announcement, BGL appointed Entech as an independent Study Manager. BGL has flagged that initial desktop Studies have demonstrated the potential for open pits at Bellevue and Tribune (further drilling required) and that these are likely to form part of the project’s Economic Study. As a reminder, we model the project on a 100% underground basis (supporting ~150kozpa at AISC of A$1,000/ oz) and see the potential for high grade open cut ore as a valuable development which could improve the project payback period, introduces flexibility during the mine start-up phase and could improve our ounce and cost profile assumptions. Currently, we assume capex for the project of A$110m, which allows A$30m for underground development and first production in the SepQ'22. Valuation and recommendation. Our A$1.45/sh valuation (previously A$1.35/sh) has increased modestly based on lower dilution (higher share price) in our funding assumptions. Our price target is underpinned by a DCF analysis (NPV10%) for the Bellevue gold project, plus nominal exploration value, diluted for future assumed project equity financing and net of corporate adjustments. In our view, BGL continues to screen as the most attractive and well-funded (cash A$38m) gold development story in our coverage universe, and we retain a SPEC BUY recommendation.