An Australian first in mining: Chalice’s Julimar Palladium discovery now ‘world-class’

John Deniz

Paragon Funds Management

We previously wrote about Chalice in October 2020. Chalice has been an outstanding performer for the Paragon Fund, buying in at $0.55/sh in early April 2020 ($145 million market cap) and currently trading at all-time highs of $9.05/sh ($3.2 billion market cap) – reflecting the quality and scale of its discovery at Julimar. Exploration results released recently continue to surprise to the upside. 

Chalice’s Gonneville zone (~2km within Julimar’s 26kms strike length) is taking shape for the masses to see, and importantly, remains open in several directions. Based on our Gonneville resource modelling, Chalice has delineated a high-grade ‘mineable’ 80mt+ at ~3.5g/t Palladium-Equivalent (~9moz Pd-E), which should see Palladium production of ~355koz p.a. along with strong by-products platinum, gold and base metals. 

Gonneville is ~2/3 Palladium, which continues to trade near recent record highs at US$2,832/oz - compliments of its strong fundamentals creating sustainable deficit markets. At spot commodity prices (‘spot’), project revenues are ~$2b p.a. and free cashflows (FCF) are ~$1b p.a., as shown below:

At spot, Chalice is trading at a proforma (fully-diluted, fully-funded) EV/FCF of ~3x for its first
yr of production, allowing nothing for their: 
  1. exciting 6.5km-long Hartog target at Julimar, located directly north of Gonneville discovery;
  2. $125m of cash, as we assume they’ll spend it on development; 
  3. valuable Victorian gold assets; and 
  4. 10% holding in Caspin (which has also been a great performer for the Paragon Fund) appears to have made its own Pd-E discovery 50kms away.

Our ‘Gonneville-only’ NPV (10%-real discount rate) is $3.7b or $10/sh, which excludes ~400mt of low-grade open-pitable ore (as we don’t yet know enough about its metallurgy). 

Hartog’s coincident ground-geochemistry and electromagnetic work (great leading indicators for discovering Gonneville) highlight the potential for substantial resource extensions along strike to the north. Drilling starts in the next quarter. If Hartog comes up trumps, Chalice could easily be a $20/sh+ stock. Despite the stock’s huge re-rate, it is not expensive. While we have taken profits along the way to manage our position size, we remain long and strong.

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John Deniz
Chief Investment Officer
Paragon Funds Management

John co-founded Paragon in 2012 and became principal and majority shareholder from 2017. John is responsible for executing the investment strategy and managing the Paragon Australian Long Short Fund. John has had 16 years in financial markets,...

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