Chalice, De Grey, Centaurus ready for re-rate as they wave ‘orphan’ phase goodbye

The back end of the year is chock-a-block with likely re-rating events with the potential for plenty of upside in the mine developer space on the ASX.

The common theme of these re-rating events is the advancement of recent major discoveries through the scoping and definitive feasibility study stage.

Ahead of completing the scoping/DFS stage – and the associated project funding requirement – the companies involved have all been in what Pierre Lassonde would call the “orphan” phase of the journey from discovery through to first production.

During this phase, the early excitement about the major discovery has waned, and the hard slog towards financing and eventual production sets in. Market caps are multiples of what they were before the discovery, but because investment in explorers/developers by the professional market can be verboten, the next kick-up in market value remains pending.

But that’s to about to change for three former juniors that – thanks to their success with the drill bit – are about to deliver scoping/DFS studies that spell out the scale of the opportunity their discoveries have delivered them.

And the share price targets set by analysts that follow the three stocks suggest potential substantial share price increases – in the expectation that the re-rating events will be warmly received by the market that is.

The three companies are Chalice Mining (ASX: CHN), De Grey Mining (ASX: DEG) and Centaurus Metals (ASX: CTM).

Chalice:

Chalice Mining (ASX: CHN) was a $60m explorer when it made the Gonneville nickel-copper-PGE discovery at its Julimar project on the doorstep of Perth in March 2020.

It is now a $S2.2 billion company. So there has been serious valuation creation with the drill bit by the company.

Gonneville is a world-scale discovery that will continue to grow in size with more exploration, and it has opened up the likelihood of more Gonneville’s to be found along a 1,200km stretch of the western margin of the Yilgarn Craton.

It is exciting stuff for the company and for Australia.

But for the time being, Chalice is well and truly in the orphan zone pending the release of a scoping study into the project which, in the Australian context at any rate, has a unique mix of metals that’s given rise to questions about metallurgy and process flowsheets.

Those investors standing aside from the stock are waiting for answers to those questions, as well as getting a feel for likely opex and capex for the project. A scoping study due to be released this quarter will go a long way to answering those questions.

Scoping studies by their very nature are more about presenting options rather than definitive proposals, which come later in preliminary and definitive feasibility studies.

The release of the scoping study by Chalice will nevertheless begin the process of the company leaving the orphanage to begin its journey up Lassonde’s value curve.

Signing up one of the end-users, trading companies or mining companies now talking to Chalice about becoming a strategic partner in the project would speed that process up.

Chalice closed on Thursday at $5.85 a share. Macquarie has a 12-month price target some 57% higher of $9.20 a share.

De Grey:

De Grey (ASX: DEG) was a $50m gold explorer back in November 2019 when it first knew it was on to something special at its Hemi gold discovery, part of its broader Mallina project area in the Pilbara.

It is now a $2.09 billion company, thanks to the 11.7 million ounces of gold (and growing) it now has under its belt across Hemi/Mallina, and it is close to releasing a definitive feasibility study into the development of what will be a Top-5 Aussie gold mine.

Last September’s preliminary feasibility study into the development was so comprehensive that not much difference is expected in the DFS. But there will some refinements and changes.

More to the point is that confirming work in the higher level DFS, and the conclusion it will help bring to the financing question, will open up De Grey to a broader investor base.

The PFS priced a 540,000ozpa operation at $1.05 billion at an all-in sustaining cost of $1280/oz in the first 10 years of a 13.6-year mine life. An increase in the capex to $1.2bn in the DFS would not surprise given WA mining inflation.

There might be some indigestion on the day caused by a higher capex cost, but the reality is the increase will be meaningless for a project shaping up as a multi-decade producer.

Mallina’s upside value potential should become clearer in the DFS as well. It is something for which RBC reckons, along with De Grey’s corporate appeal, that the market is pricing in only minimal operational upside.

It initiated coverage on the stock this week with a price target of $1.80 a share (with an upside scenario of $3 a share), some 33% higher than Thursday’s close of $1.35 a share.

Centaurus:

Centaurus (ASX: CTM) was a $25m Brazilian explorer when it picked up the Jaguar sulphide nickel project in Brazil from Vale in August 2019.

It is now a $322m company based on Thursday’s closing price of 79.5c. The company’s success with the drill bit has Jaguar well on the way to becoming a 1Mt deposit.

Like Chalice, the company has a strategic partnering process underway which in itself is a likely re-rating event. The world is running short of Class-1 nickel projects, particularly ones with 20,000tpa production horizons.

But the main near-term event will be the release of the Jaguar definitive feasibility study in the December quarter. It will give current onlookers who are keen for a new exposure to the nickel thematic an insight into all of the project’s key metrics.

Like De Grey, there is likely to be a capex increase from what was suggested previously. But again, long-lived Class-1 nickel projects of scale are rare beasts.

Macquarie has a 12-month price target on the stock of $1.50 a share. That is 88% higher than Thursday’s closing price of 79.5c.

James Bay Minerals:

The $6m IPO of James Bay Minerals (proposed ASX code: JBY) opened late last week and is understood to have been swamped with investor interest, such is the ASX investor base interest in the namesake lithium hotspot in Quebec.

The James Bay region is host to Patriot’s (PMT) Corvette discovery, which was confirmed as a world-class find at the start of the week – so much so that US lithium giant Albemarle emerged as a 4.9% shareholder through a strategic placement the next day.

More interest was generated later in the week, when Rio Tinto boss Jakob Stausholm said he would like a lithium asset in Quebec where the company already has major iron ore, titanium and aluminium interests.

Why not Patriot then? Its $2.2 billion market cap is no hurdle for Rio, but Albemarle’s presence now clearly is.

While that plays out, JBY expects to be drilling early next year at prospects along the La Grande greenstone belt along trend from Patriot.

JBY is no ordinary nearology play, or a company hoping to trade off its James Bay moniker.

The company is populated by former senior types from Pilbara Minerals and US lithium group Nemaska which is now working towards becoming a lithium hydroxide producer in Quebec.

JBY’s lithium prospects are also the result of a global study on where best to find large-scale hard-rock lithium deposits. WA and Quebec popped up. WA was too crowded so Quebec won the day, all ahead of the current lithium mania over there.

JBY will have a market cap at the issue price of $12m. Talk about leverage to a discovery.