Company Overview: Brightstar Resources Limited (ASX: BTR) is engaged in gold exploration & production and has a presence in the Laverton region of Western Australia. It has operations in three projects which are in the vicinity of 60km radius of the Brightstar plant – Alpha Project: This mineral resource of 1.4Mt at 2.3g/t for 106koz Au is within 15km of Brightstar processing plant, Beta Project: The Beta Mineral Resource of 1.9Mt at 1.7g/t for 101koz Au is immediately adjacent to the company’s processing plant, Cork Tree Well Project: The mineral resource project comprises of 3.9Mt at 1.9g/t for 237koz. The company has changed its name from Stone Resources Australia Limited to Brightstar Resources Limited on 16 November 2020.

BTR Details

Optimistic Results from Initial Batch of Assays at Cork Tree Well Drilling: As per a recent announcement, the Group has reported that it has received the initial batch of assays from its drilling activities at Cork Tree Well, which is located in the Laverton Gold belt of Western Australia. The results reflect significant gold and nickel grades from the drilling program.

• The Managing Director of the company, Mr Hobba is optimistic with the results, which witnessed significant intercepts from 18 holes.
• Further material nickel mineralisation was also retuned during the analysis, which was sampled every 20 metres. This reflects potential substantial accumulations of nickel mineralisation in the belt.

September 2021 Quarter Update:

• During the period, the Group reported successful procurement and deployment of Strike Drilling as the selected drilling company for the Cork Tree Well (CTW) RC drill program.
• It engaged Canaccord Genuity (Australia) Limited as the Lead Manager for a placement of $2.3 million, which will be used to fund the exploration activities at the Laverton Project and for working capital needs. The company has witnessed a strong demand for its placement round, which was oversubscribed by existing as well as new investors.

FY21 Performance Update:

• The company completed the divestment of its Ben Hur project in September 2020. It also executed the Debt and Equity Compromise Agreement (DECA) during the year.
• Following the completion of DECA, debt amount of $57.25 million owed by BTR to its previous major shareholder and major debt provider (Stone Resources Limited (“SRL”) and Stone Resources (HK) Limited (“SRHKL”) has extinguished.
• The inflated other income of $62.06 million in FY21 is primarily due to the forgiven debt, which also pushed the NPAT of the company to $60.55 million in FY21, compared to a negative $6.61 million in FY20.
• The Group exited the year with cash & equivalents of $985,036 as of 30 June 2021, compared to $50,032 as of 30 June 2020.

Net Income Trend (Source: Analysis by Kalkine Group)

Exploration Licences in Laverton:

As per a recent announcement, the company has updated about the execution of a Binding Agreement for the acquisition of prospective exploration licences in Western Australia, E38/3500 and E38/3504 (Comet Well) from Milford Resources Pty Ltd (Milford).

• It has prosed to acquire 120sqkm tenement package that is contiguous with the Company's Laverton Gold Project.
• The acquisition will significantly increase the company’s land holding to ~300sqkm.

Top 10 Shareholders: The top 10 shareholders together form around 43.80% of the total shareholding, while the top 4 constitute the maximum holding. Hobba (William)  and Duan (Yongji)   are holding a maximum stake in the company at 13.05% and 5.97%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The Group reported a significant uptick in net margin in FY21 owing to debt extinguishment. It delivered an improvement in the liquidity with the current ratio at 0.60x in FY21, up from a level of 0.19x in FY20.

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Commodity Price Risk: The Group is exposed to commodity price risk, which can have an impact on its profitability.
• Funding Risk: The company also needs access to funds from time to time in order to fund its operations and for exploration activities. Any challenge to obtain funding might hamper its operations.
• Regulatory Risk: BTR’s operations are also under the strict purview of regulatory bodies, and any curbs to the project activities might impact the earnings of the firm.

Outlook: The company recently reported assay results of the first 26 holes from the Cork Tree Well Drilling Program and has witnessed significant intercepts from 18 holes. The ore body has reflected decent continuity at depth and along strike, which augurs well for further JORC Resource growth. Further with the divestment of the Ben Hur project and a Debt and Equity Compromise Agreement, allows the Group to focus on its core exploration activities going ahead.

Stock Recommendation:  As per ASX, the stock of BTR is trading below its average 52-weeks’ levels of $0.024-$0.093. The stock of BTR gave a positive return of ~5.76% in the past one year and a negative return of ~8.33% in the past one week. Considering the current trading levels, positive results from the drilling program at Cork Tree Well, execution of Debt and Equity Compromise Agreement (DECA), binding agreement for acquisition of exploration licences in Laverton, technical analysis, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.053, down by 3.63% as on 12 November 2021.

Technical Insights:

BTR price broke the downward sloping trend line by upside and prices are sustaining above the breakout level from the past two weeks. RSI (14-period) is hovering at ~56 on daily chart that further indicating the stock is trading in bullish momentum. Immediate support level is at AUD 0.045, while immediate resistance level is at AUD 0.068.

BTR Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart shows RSI (14-period)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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