Develop’s valuation comes to the fore as extent of production and cashflow outlook emerges

It wouldn’t be a Bill Beament and team mine development if it wasn’t ahead of schedule and shooting the lights out in more ways than one.

And so it is with the redevelopment of the Woodlawn copper-zinc mine near Goulburn in NSW by Beament’s 23%-owned (diluted) Develop (DVP).

Mentioned here on February 7 when it was trading at $2.43 as re-rating stock in the making, Develop has this week cruised on up to $3.26 for a 34% gain in the interim.

Pushing things along was Develop reporting first copper concentrate production at Woodlawn, with first cashflow coming in the current June quarter.

More broadly, the restart is on budget and on schedule, with the operation’s zinc and lead circuits now in the commissioning phase.

Getting Woodlawn up and running is a big deal for Develop. On current spot the first three years’ of steady state production of 20,000tpa of copper equivalent would be good for about $425m of pre-tax cashflow.

That alone from the 10 year-plus project more than covers Develop’s $890m market cap.

But Develop runs a mining services business which holds the mining contract at the Bellevue gold mine in WA which was good for $50.5m in revenue in the June quarter. It is now looking to take on additional contracts now that the in-house commissioning job at Woodlawn is pretty much done.

And then there is the Sulphur Springs copper-zinc project, 140km south-east of Port Hedland, which has a good sized resource which has been waiting for can-do sort of guys like Beament and his mining team to come along and get it developed.

The in-house mining services team are on the job now completing earthworks ahead of a planned start to the mine portal and decline development for what is now a simplified and sharper-focussed underground operation.

On a copper equivalent basis, Sulphur Springs is earmarked as a 30,000tpa copper equivalent producer. Beament’s plan to fund the development involves the potential sale of a 20% interest in the project.

HSBC is on the case, with Beament reporting that several parties have been taken through to the next phase of the process. Further site visits for potential buyers are planned for coming months.

There is a strong appetite for copper assets, which has been reflected in the prices paid in recent sales in the local market for producing assets.

ASX-listed MAC Copper (MAC) paid $1.4 billion in cash and shares in 2023 for the 42,000tpa CSA mine in Cobar and Evolution paid $750m for 80% of the Northparkes copper-gold mine with its 25,000t of copper and 38,000oz of gold annual output, also in 2023.

It is of interest then that post a sale of 20% of Woodlawn, should it happen, Develop would be good for 46,000tpa of copper equivalent production once Sulphur Springs becomes a fully ramped up operation.

That part reality, part future development of 46,000tpa of copper equivalent is currently housed in a $890m market cap company which also has a difficult to replicate mining services business geared towards the growing trend of underground mining.

Copper market:

The strong interest in copper assets reflects a number of things - supply pressures coming from falling grades, mine exhaustions, approval delays and a lack of new developments, all at a time when global electrification marches on.

As detailed by the International Copper Study Group last week, a copper surplus of 289,000t for 2025 and a lesser 209,000t for 2026 is the broad expectation. It did not forecast beyond 2026. But others have with the expectation being increasing supply deficits post-2026 to become the norm.

As it is, the copper price has been doing okay anyway. The LME 3-month price of $US4.14/lb is down from the March quarter average of $4.24/lb but is well ahead of the $3.82/lb March quarter average in 2024.

It is a kind of heroic performance given all the global economic growth concerns triggered by President Trump’s tariffs assault on friend and foe alike. The growth concerns are greatest concerning China which takes close to 60% of world copper production.

The slowdown in factory activity in China in April was taken as a sign that the impact of the tariff war was starting to impact the Chinese economy. Maybe so, but copper remains in tight supply, so much so that inventories have fallen sharply and the Chinese premium for the red metal has tripled in the last three months.

It seems that the country’s growing fleet of copper smelters are betting that China will turn to copper-intensive industrialisation growth to offset the loss of low-value Temu-type exports to US consumers.

Boss:

A body language expert would have picked that things were going well for Boss Energy (ASX:BOE) at its Honeymoon uranium project had they spied the company’s managing director Duncan Craib at last month’s Resources Rising Stars Gather Round conference in Adelaide.

Craib seemed more relaxed than ever. Why, even the Windsor knot had been parked up for an open neck look while working the room full of mining investors.

A couple of weeks later and Boss’ March quarterly lobbed to explain Craib’s feel good mood. His short-hand summary in the quarterly was that Honeymoon enjoyed an outstanding quarter. It was enough to make the shorts in the stock choke on their Weeties.

Along with other uranium names, the big short position in the stock was premised on the ramp-up of Honeymoon not going well. There was also a feeling among the shorts that when uranium hit $US107/lb in January 2023, the market was overbought.

They were right on the uranium price coming off. The spot price which drives sentiment, even though it shouldn’t because it is the long-term or contract price that matters, is now back at $US67.50/lb.

But they weren’t right on Honeymoon’s ramp-up. Volumes, production costs and realised prices have met or exceeded guidance/expectations to the point where Boss started to generate free cashflow in the March quarter from the operation.

Honeymoon continues to add processing units that will take annual output from a guided 850,000/lbs this financial year to an expected 2.5M/lb by FY2027, with Ord Minnett estimating Honeymoon at that rate will be good for annual free cashflow of $100-$160m.

The broker has a $4.50 price target on the stock which in Thursday’s market was trading at $3.40 a share.