Intersuisse values Bass Metals at $0.35 per share

Bass Metals (ASX: BSM) has a track record of delivery since listing in Oct 2005. Bass has built a diverse portfolio of interests in Western Tasmania focused on the exploration for base metals and gold in the highly mineralised Mt Read volcanic belt, one of Australia’s premier base metal producing regions.

Investment Rationale

Last Price: $0.17
Market Cap: $28.99m
52 Week High: $0.3493
52 Week Low: $0.155
Cash: AUD$17.586
Valuation: NPV @12% $0.35

- Strategic tenement position across the northern section of the highly productive Mt Reid base metal province in Tasmania
-
Development underway on the Fossey mine with first production in late 2010, from high grade ore averaging 8.6% zinc, 5.0% lead and 120 g/t silver that will provide 2 years production
- Additional ore from Hellyer and Que River mines will add a further 2-3 years operating life
- New exploration ideas throwing up numerous high value targets
- Current Market Capitalisation at a 50% discount to NPV

Overview

Bass is a producer with an expanding production profile. In the Hellyer tenements the company has multiple existing and potential ore sources including the newly discovered Fossey deposit, remnant ore in the previously mined Que River and Hellyer mines together with the Mt Charter gold prospect.

Beyond that there are the 10mt of base metal tailings from the previous Hellyer operation. In addition Bass has an active and innovative exploration program with a number of high priority polymetallic VMS targets in the early stage of evaluation.

Que River mine is already producing high grade low cost ore which is sold to MMG at Rosebery, a second mine Fossey will commence production in late 2010. In about 2 years Bass will move to processing remnant ore from the Hellyer mine.

These assets will provide investors exposure to significant robust, cash flow whilst Bass continues
its successful and active explorer program searching for new high grade deposits.

Bass has generated some $25m in cash flow over the past two years from the sale of polymetallic (zinc, lead, copper, silver & gold) ore from its Que River mine.

These sales have funded all of the company’s exploration and development activities, including the acquisition of the 1.5mtpa Hellyer processing plant and the completion of a feasibility study on the Fossey deposit. A sales agreement on Que River ore continues until July 2010.

The company raised A$15 m late in 2009, this in combination with a A$12 m banking facility and cash generated from the Que River operation provides sufficient funds for the company to complete development of its Fossey mine and accelerate testing of its new exploration targets in the Hellyer-Que River region.

Investment Summary

Volcanogenic Massive Sulphide or VMS deposits are generally recognised as being consistently the highest grade polymetallic deposit class known. Typically they occur in clusters within a specific geological region. The Mt Reid volcanics in Tasmania are one of the most productive VMS regions in the world yet there remains considerable untested potential. Bass has a strategic holding in the region and has already
discovered a new orebody in Fossey.

However, despite the company having existing production at Que River mine and the capital resources to bring the Fossey orebody into production, Bass is capitalised at $30 million only half our current valuation of $59.5 million based on recently weaker base metal prices.

There is a direct investment comparison with the earlier stage development of Jabiru Metals Ltd operating in the Murchison region of WA near the old Teutonic Bore Mine.  Jabiru has discovered two new small but high grade zinc-copper VMS orebodies and is producing similar annual quantities of concentrate to that planned by Bass from Fossey.

Jabiru is currently capitalised at $174 million suggesting that not only is Bass significantly undervalued now but with modest exploration success has very substantial value upside.

Valuation

Phillip Capital (Intersuisse subsidiary) has valued Bass at A$59.5million, that is A$0.35per share.

The Fossey orebody will be mined and processed to concentrate over some two years generating very strong cash flows for Bass. Thereafter the Company plans to mine and process Que River and Hellyer remnant ore.