Blackheath Resources - Borralha

Blackheath Resources (BHR.V) has thrown the towel and is exiting Portugal. After dropping the option to acquire the Covas tungsten property, the company has now also dropped the Bejanca tin-tungsten project and is selling its option to earn a majority stake in the past-producing Borralha mine to a Mauritius-based company.

As per the agreement, PanEx will replace Blackheath as option partner and has promised to spend at least C$5M on exploration and economic studies at Borralha to earn an initial 90% interest in the property. Theoretically, Blackheath Resources will end up with a 10% stake in the project but it will very likely elect to not fund 10% of the subsequent expenses which means the company will probably end up with the 1% Net Smelter Royalty. Considering Blackheath has been cash-strapped for a while, it’s probably a good thing to end up with a 1% NSR, which could actually be relatively valuable for a company with a market capitalization of just C$0.5M.

In a theoretical and hypothetical scenario wherein PanEx will produce 75,000 mtu/year at a tungsten price of US$300/mtu, the annual cash flow from the 1% NSR would be approximately C$225,000 (but even if this scenario unfolds, it’s still several years away). It looks like Blackheath Resources now is a clean shell with a decent share structure and a low C$500,000 market capitalization. As PanEx will also invest C$100,000 in Blackheath (and will continue to invest C$25,000/year) in a private placement priced at C$0.05/share, Blackheath can now start looking for new projects or allow itself to be used for a RTO.

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The author has a substantial long position in Blackheath Resources. Please read the disclaimer

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