Leveraged juniors tapping into metals mayhem

The copper price was doing nicely long before Russia invaded Ukraine, having risen 51% from its 2020 average to a 2021 average of $US4.22/lb. The price has been swept higher in recent days to $US4.65/lb in recognition that on Macquarie figures, Russia accounts for about 4% or 1mtpa of global copper supply, of which about 75% is – or was - exported. So while copper is not in the same basket as the energy commodities, the copper price is certainly now consolidating in record territory levels. In this week’s note, I report on a couple of explorers looking to capitalise. 
Barry FitzGerald

Independent Journalist

Hammer hitting copper in Queensland, Calidus eyes first gold as its lithium exploration fires up and gold hunts by Nagambie and Mamba attracting strong interest.

The copper price was doing nicely long before Russia invaded Ukraine, having risen 51% from its (calendar) 2020 average to a 2021 average of $US4.22/lb.

The price has been swept higher in recent days to $US4.65/lb in recognition that on Macquarie figures, Russia accounts for about 4% or 1mtpa of global copper supply, of which about 75% is – or was - exported.

So while copper is not in the same basket as the energy commodities which have shot massively higher in response to the invasion, the copper price is certainly now consolidating in record territory levels.

There isn’t a copper producer or explorer who would not want to see the end of the Russian invasion and take last year’s average price of $US4.22/lb for the long run.

The spike to $US4.65/lb nevertheless has heightened investor interest in the copper producers and explorers.

The leverage to a discovery that explorers can bring to the table means they make can make their own way in a $US4/lb-plus market anyway.

Carnaby (ASX:CNB) has done that with its December high-grade hit (41m at 4.1% copper) at its Nil Desperandum prospect in the Mt Isa region of north-west Queensland. What was a $35m company before the hit is now valued at $260m.

Needless to say that the excitement around Nil Desperandum has rubbed off on other explorers in the region.

Today’s interest is one of them, - Hammer Metals (ASX:HMX), trading at 9c for a market cap of $73m and holding cash of about $8m for a super-active 2022 drilling program.

It is a neighbour of Carnaby’s in the region and recently put its hand up as one to watch when it reported a 10m hit at its Ajax prospect grading 3.5% copper from 27m (subject to confirmation in the assay lab, with results expected within 7 days).

It has been followed up with downhole EM and soil geochemistry, with more drilling planned there after the completion of a drilling campaign at a big IOCG target at the Overlander South prospect which was identified using the same techniques Carnaby had success with.

All up, Hammer has some 14 targets to test in its current drilling program.

It already has a 400,000t copper equivalent resource under its belt in the region across a number of deposits. That’s interesting in itself at the current copper price. Get the resource to 600,000t or so and it would have a hub development on its hands.

Even better, find a big standalone project development from the IOCG hunt and it would be off to the races for the company.

Calidus (ASX:CAI):

Putting aside the increased volatility in share prices which come with a gold price above $US1900/oz, it seems clear that the re-rate of Calidus (CAI) is underway as it gets close to first production at its Warrawoona gold project in the Pilbara.

Last mentioned here on February 25 when it was a 73c stock, Calidus traded as high as 82.5c in Thursday’s market before the gold price swung lower, dragging all gold stocks down. Still, Calidus’ close of 79c goes to the re-rating proposition.

Calidus confirmed during the week that its first gold pour is about 10 weeks away and quite remarkably, given the cost pressures across the industry, the project remains of budget.

Where the re-rate ends up will be interesting to watch.

Warrawoona is a 90,000/oz a year project, with output to be flexed up to as much as 130,000oz annually with the development of the Blue Spec high-grade satellite deposit.

Calidus is most often compared with Capricorn Metals (ASX:CMM), which owns the newish 110,000-125,000ozpa Karlawinda project, also in the Pilbara.

Capricorn has made a real success of Karlawinda and now has a $1.4 billion market cap.

Calidus is currently back at $308m. There are differences between the projects but it seems clear there is plenty of room for growth in Calidus’ market ap, assuming a successful start at Warrawoona.

Market cap growth could also come anyway as Calidus, in a 50:50 company partnership with Gary Morgan’s Haoma Mining, has got cracking in a lithium hunt around Marble Bar.

A recent diary note had Calidus saying there would be “exploration result updates in the near future”.

Gold remains the prime focus, but there would be nothing wrong in adding a lithium leg to its story in the hotter than hot market for the battery material. It presently comes for nothing in the Calidus share price.

Nagambie Resources (NAG):

The Fosterville gold mine near Bendigo has quite rightly dominated discussion around Victoria’s untapped gold potential ever since the 2016 discovery of the super high-grade Swan Zone.

Production at the mine – owned by Canada’s Agnico Eagle after its merger with Kirkland Lake – has come back from the early highs that followed the Swan Zone discovery, but forecast output of 410,000oz at a cash cost of $US385/oz for 2022 still ranks it as one of the world’s best.

Another Canadian-owned Victorian mine has also been kicking goals – the high-grade Costerfield gold-antimony mine.

The mine has underpinned a three year turnaround story for its owner, the $C264 million Mandalay Resources (TSX:MND) which also owns a gold mine in Sweden.

Costerfield has turned into something of an earnings powerhouse (relative to Mandalay’s market cap), contributing $US88.9m in EBITDA and $US47.8m in net earnings to Mandalay in 2021.

Mine life from a single high-grade vein has long been constrained but that has changed in a big way with the discovery of five new veins in what Mandalay calls the Shepherd system.

Clearly bigger things are in store for Costerfield which produced 68,729ozs of gold equivalent in 2021.

And just as the Swan Zone at Fosterville sparked up interest in the potential for repeats of its style of mineralisation elsewhere, so too has Mandalay in the high-grade gold-antimony potential elsewhere in the state.

All that leads into today’s real interest – Nagambie Resources (ASX:NAG) which owns the former gold mine site of the same name, about 45km east of Costerfield.

It’s where Nagambie has teamed up with the privately held Golden Camel Mining to build a toll treatment plant in which revenues and costs will be shared 50:50, but with Golden Camel responsible for the construction and commissioning costs.

There is Fosterville-style potential at Nagambie but in a classic example of how the exploration game is always full of surprises, the gold-antimony potential there has shot to prominence thanks to a new understanding around a high-grade hit in 2006 below the historic West oxide gold pit.

The drill hole returned gold grades of up to 24g/t and antimony grades of up to 60% stibnite (antimony sulphide) from multiple veins. But the drilling was not orientated as it should have been to establish the strike direction and dip of the veins, meaning there was no surprise follow up holes were duds.

Roll the clock forward to 2022 and the (new) geological thinking is that the gold-antimony mineralisation below the old pit strikes in a north-south direction rather than the east-west direction assumed in the past.

So it is going to be interesting when the company gets around in coming weeks to drilling an initial program of two (orientated) scissors holes to establish the strike and dip of the stibnite veins hit back in 2006.

“With access to the treatment plant being built at the Nagambie mine site, a decline-mine development could be rapidly advanced if exploration proved successful,’’ the company said. Nagambie last traded at 5.5c for a market cap of $25m.

Mamba Exploration (ASX:M24):

Unlike many others, a lot of thought went into last year’s IPO of WA gold and base metals explorer Mamba Exploration (ASX:M24), including naming itself in honour of the late and great Lakers basketballer Kobe “Black Mamba” Bryant.

Cognizant that newsflow is all important if a junior wants to be on the radar, Mamba deliberately stuffed its portfolio with weather-friendly projects – winter projects way up north in the Pilbara and Kimberley, and summer projects down south in the Darling Ranges and the Great Southern district.

It also deliberately stepped outside of the Yilgarn, making the point that nearly all of the big gold and base metal discoveries in WA in the last 20 years have been outside of or on the margins of the Yilgarn.

The only rider there is that its projects had to be near big regional crustal structures to provide the plumbing for mineral deposits.

The fresh thinking it brought to the table has recently been rewarded with scout drilling of a soil anomaly at its Calyerup Creek prospect in the Great Southern district returning significant gold mineralisation in 20 of the 22 the initial holes.

Mamba managing director Mike Dunbar has been involved with a number of big finds in his time and he reckons the drill results (9m at 2.5g/t from 6m and 2m at 2.2g/t from 38m in separate holes) suggests the mineralised system is “far more extensive than first anticipated”.

The mineralisation extends for than 350m east-to-west and remains open in all directions. The next round of drilling will be limited to within the top 40m to first confirm the strike extent, with first results expected in early April.

It could be one to watch as apart from anything else, Mamba’s capital is as tight as they come with 61m shares on issue (19m in escrow). It last traded at 16.5c for a market cap of $10m and it has $4.5m in the till. 

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Barry FitzGerald
Independent Journalist

One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.

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