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Lake Roe looms for big gold miners

11 August 2017

WITH its capitalisation touching A$100 million this week, Breaker Resources is attracting plenty of market love from third parties for its Lake Roe discovery 100km east of the historic gold mining city of Kalgoorlie.

By many accounts Lake Roe looks to be a multi-million ounce deposit in the making, and the growing awareness of this has seen Breaker going from a complete non-entity trading at 3c to a very fashionable stock changing hands around 80c in a little over two years.

Bell Potter analyst David Coates succinctly explained the basis of the change in fortune in a research report earlier this month.

“We believe that Breaker represents a unique opportunity in the landscape for Australian gold assets and its Lake Roe gold project may well emerge as one of the landmark discoveries of the current decade,” Coates said.

“In short, we see potential for a multi-million ounce open-pit operation with a 7-10 year mine life at good grades (circa 2 grams per tonne), depth extensions to support a concurrent underground operation and untested exploration potential surrounding a significant mineral endowment.

“All this in a greenfields setting 100km from Kalgoorlie in Western Australia, one of the most attractive gold mining jurisdictions globally.”

Indeed such is the perceived attractiveness of Lake Roe that Bell Potter was even willing to go down the M&A route.

“We would not normally flag potential corporate action as a factor in our investment case for a company, however given the potential development scenario we envisage for the Lake Roe project we think in this case it is too compelling to ignore,” Coates said.

Breaker is set to put out a maiden resource near the end of the year, and this is seen as a key catalyst for further market attention.

Broad comparisons are made with two recently exploration stories – Gold Road and Dacian –  both of which were re-rated to levels of $200 million as they passed similar, relatively early stage milestones.

“We point out that these were achieved in market conditions characterised by much lower valuations than currently, particularly for Gold Road, when the ASX Gold Index was trading at less than half the current levels,” Coates said.

The big question is corporate action.

Gold miners are flush with cash and exploration success by third parties (aside from the likes of Breaker, Dacian, Gold Road), offering the potential for new mines and a growth in profile, are very thin on the ground.

However, there has been talk around the traps that Breaker MD and 16% shareholder Tom Sanders isn’t looking to sell.

That would seem to tie in with his history.

Last decade Sanders was the founder and MD of Navigator Resources, which had been working on developing a gold operation at Leonora before changing tack and buying the shuttered Bronzewing operation.

Less than two weeks after announcing the Bronzewing deal early in April 2009, Sanders had resigned, and while the reason or reasons for his sudden exit are unknown, it’s understood that it wasn’t to do with the Bronzewing acquisition per se.

A conclusion that can be drawn on his time at Navigator seems to be the suggestion that Sanders would be more than happy being involved in the development of an opportunity such as the one emerging at Lake Roe.

Three years later Breaker listed on the ASX (with the company named, for what it’s worth, after the controversial Harry “Breaker” Morant, the Australian drover, horseman, bush poet and military officer who was convicted of war crimes in the Boer War – wrongfully according to some – and executed in South Africa by firing squad in 1902).

Meanwhile Sanders’ exit from Navigator saw him dodge a bullet of sorts given just a few days short of the fourth anniversary of the announcement of the Bronzewing deal, Navigator appointed administrators.

Aside from Sanders, the register at Breaker is described as relatively open, with institutional presence on the register said to be light.

The Bell Potter report cited CQS (New City Resources) and Gold 2000, both specialist resource sector funds as being shareholders (though below substantial holdings), while Sander’s 16% stake is significant for obvious reasons.

The bottom line is Sanders looks to have positioned his company very soundly indeed.

Any third party bid would likely have to be particularly sharply priced to succeed.

As Bell Potter’s Coates puts it, “we see the potential for stiff competition to own (Lake Roe)”.