Cutting-edge assay group winning friends in high places with promises of faster, safer tests

Chrysos Corp (C79) is a rare thing for the ASX and for that matter, Australia.

The Adelaide-based company is out to convert the global gold industry from the ancient fire assay method of analysing ores over to its faster, safer, more accurate and automated PhotonAssay process.

Developed by the CSIRO over 15 years, the high-energy X-ray analysis technology is truly of the disruptive genre. PhotonAssay currently holds about a 3% share of the gold assaying market but has its sights on an eventual 90%-plus share.

That it is making headway was demonstrated recently when the world’s biggest gold miner Newmont signed up for an initial PhotonAssay unit for its at its Ahafo mine in Ghana under a “master services agreement” which streamlines the process for Newmont to deploy units at its other mines.

The MSA was a first for Chrysos which currently has 35 units deployed with existing third party assay labs and at mines sites. That compares with an estimated addressable market for more than 600 units globally, again split between off-site and on-site use.

The technology can be housed in three parallel 20 foot containers with each unit costing about $4 million to build. Annual revenue per unit to date has been running at about $1.7-$1.8m against costs of $450,000, leaving a gross annual profit of $1.3-$1.4 million per unit over a 20-year life.

In essence, each rollout of a PhotonAssay unit adds $20m to the company’s NPV.

Chrysos maintains ownership of the PhotonAssay unit with its revenue entirely generated by a lease model under which the customers – the miners or the assay labs – commit to a monthly take or pay amount of samples a month, with every sample run in addition to that attracting a payment per sample.

The overall aim is to charge a fee per sample that is akin to what the miners are paying to the fire assays labs. Because PhotonAssay has a lower operating cost than a fire assay lab (labour, consumables and power), it profits come from the difference.

Given the growth potential implied by the addressable market of more than 600 mines (in the 40,000oz per annum category) globally, Chrysos (its Greek for gold) is rated highly by the analysts.

It is seen as having the alluring mix of a disruptive technology that is actually being deployed by an industry happy to adopt a technology known to work and importantly, one that solves the health issue of workers in gold fire assay labs being exposed to lead poisoning (it is used as a flux in a 1000C degree-plus process).

Following the recent deal with Newmont – the world’s second-biggest gold group Barrick is already rolling out the technology at its mines – Shaw & Partners headed a May 9 research note saying Chrysos was a “standout quality growth stock going cheap”.

The broker said signing up Newmont was a significant milestone that “reinforces that PhotonAssay is the future, but that adoption just takes time”. It has a 12-month price target on the stock of $6.80.

When the broker penned the report, Chrysos was trading at $4.87. The stock was a shade higher in Thursday’s market at $4.90 for a market cap of $565m. Along with all of us through the CSIRO, the other big shareholders are Regal Funds, ECP Asset Management and AustralianSuper.

Bill Beament:

Look further down Chrysos’ Top 20 shareholders list and up pops Bill Beament, formerly of Northern Star fame and now building a mining services and base metals producer of scale at his 23%-owned (fully diluted) Develop (DVP).

He is listed in his private capacity as holding 1.12 million Chrysos shares, or 0.98% of the company, worth $5.5m.

Beament was one of the original seed investors in Chrysos when was it was released from the CSIRO.

Asked about the technology this week, Beament said he loved it. “It’s game-changing and massively disruptive for the (assaying lab) industry. This will be taken out, it’s only a matter of time,” he said.

Northern Star is on board with the technology and is understood to have just had one installed at Pogo in Alaska after underwriting the first unit in Kalgoorlie.

Beament said Newmont signing up for the technology was a watershed moment. “Once you get it, you don’t go back,” he said.

“It’s just a great technology. You get a sample in 7 seconds. It’s way better and has got a full ESG element but it’s just cheaper and more efficient. And the accuracy is there, it is amazing.”

Develop:

Back at Develop, Beament has just served up a bigger picture story for the company’s Sulphur Springs project in the Pilbara.

In announcing that site clearance and work on the box cut for the underground decline had started, Beament added that a bottom-up approach to mining the zinc-copper deposit had been adopted.

In the bottom-up approach, the decline will be developed down to the bottom of the known orebody and mined upwards, meaning the clash between mining and developing an underground mine from the top of the orebody is removed.

It is a major de-risking event that requires an early commitment to the decline and underground mine workings ahead of the treatment plant being turned on. But it delivers increased productivity and reduced ore dilution (mining takes place on top of paste fill).

Development reckons the increase in ore production tonnages could be about 20% which will be incorporated into an updated definitive feasibility study due for release in the December quarter as a precursor to a final investment decision on the project’s development.

Assuming the 20% productivity boost is confirmed, an increase in the planned mining and treatment rate from 1.25Mtpa to 1.5Mtpa could translate to a production increase from 30,000tpa of copper equivalent to an annual rate approaching 35,000tpa.

Add that to the 22,000tpa copper equivalent Develop is already on its way to producing at its Woodlawn redevelopment in NSW, and Develop has the makings of becoming a 55,000-60,000tpa copper equivalent producer.

It will also be one of the few base metals producers left standing on the ASX given the last couple of weeks have seen four of its competitors for the investor’s dollar – MAC, Xanadu, New World Resources and Adriatic – become the subject of agreed takeover bids, or a potential bid (Adriatic).

The scale of Woodlawn/Sulphur Springs and the dearth of investable base metals options of scale on the ASX means Develop’s production potential is yet to be fully appreciated by the market.

Having said that, Develop has moved up from $2.06 a share during the market’s April sell-off to $3.78 in Thursday’s market for a market cap of $1.04 billion.

The takeover bids mentioned earlier were all at big premiums to the ruling market prices of the target companies – a clear indication that industry players are valuing base metals assets at prices well ahead of equity markets.