Beadell Resources: Results 2013

The first full year of operations at the Tucano gold mine in Brazil was an outstanding success for Beadell Resources. Full year production of 182,000 ounces resulted in revenue of $250m and net profit was $114m, translating to earnings per share of 15 cents. Dividends are unlikely to be paid until the company clears its outstanding debt.

Unusually, gold ore at Tucano sits next to neatly defined layers of high grade iron ore. The company has now installed processing facilities to earn revenue from the iron ore by-product. This, together with high grades and large volumes, explain low total production costs of just over $700 an ounce.  

Throughput rates should increase next year from 3.5m tonnes to 4.5m, although we expect grades to fall as the ultra-profitable Duckhead ore body is replaced with lower grade ore. Production of around 200,000 ounces should be sustained for about a decade from Tucano.

Delays in production meant that, for a time, Beadell was in technical breach of covenants. The company has now restructured its debt to reflect altered production. Debt repayments will increase later this year and a new tranche of hedging has been established.  Total hedging now stands at 190,000 ounces at prices between US$1,313 and US$1,600 per ounce. The company repaid US$48m of debt in the year using operating cash flow and proceeds from an earlier capital raising. Net debt now stands at $85m and should be rapidly repaid.

The first year of full production from Tucano suggests early teething problems have been sorted and the economics of the project work. The share price, down 20% since Gold portfolio takes a bath (Speculative Buy - $0.75), remains ravaged by pessimism about gold and uncertainty about debt. We recommend punters construct a portfolio of gold miners, as we suggested in AU, check out this gold portfolio, rather than bet on a single one. Beadell remains a SPECULATIVE BUY.