Equities

Plus, Red 5 poised for promotion to the next league of ASX gold producers. And Macquarie sees short-term bullish catalysts for commodities.

Stavely Minerals (ASX:SVY) has added a stunning second leg to its big-time copper hunt in the shadows of the Grampian Ranges in western Victoria, with the first hole in a new shallow-focussed drilling program assaying up to 40% copper.

The spectacular hit was made at the Thursday’s Gossan prospect, with the diamond drill hole specifically targeting shallow and structurally controlled mineralisation within the Ultramafic Contact Fault (UCF).

The results sent Stavely shares through the roof yesterday. The stock soared from 24c to a high of 93c before closing 258per cent higher on the day at 86c, giving the company a market capitalisation of $160 million.

The drill hole returned a 32m intersection which assayed 5.88% copper, 1g/t gold and 58g/t silver from 62m down-hole, including 12m at 14.3% copper, 2.26g/t gold and 145g/t silver, and 2m at 40% copper, 3g/t gold and 517g/t silver.

Oh, there was also a slightly deeper mad ass intersection of 4.4m from 96.7m which assayed 3.98% nickel and 0.23% cobalt.

“Rounding out today’s wrap on the porphyry hunters is Stavely Minerals (ASX:SVY), trading at 22c. It is methodically zeroing in on the hot part of the porphyry system at its Mt Stavely project in western Victoria and has just notched up a shallow lode-style mineralisation hit to the south-east at its Thursday’s Gossan project.” – Barry FitzGerald giving investors the Stavely heads-up on Livewire two weeks ago

The first up success in the shallow program firmly implants the Stavely project among Australia’s growing list of copper exploration hotspots.

Other recent successes include Winu (Rio Tinto) and Havieron (Newcrest/Greatland) in WA’s Paterson province, Oak Dam (BHP) on the Stuart Shelf in South Australia, and Boda (Alkane) in NSW’s Lachlan Fold Belt.

They are all very different and all have a long way to go before impressive drill bit hits are converted into mining propositions.

If there is a difference to note, it is the leverage of the companies to their finds. Stavely – which was a 24c stock for a market cap of $44m ahead of the discovery hole being announced – wins hands down on that score, followed by Alkane and the London-listed Greatland.

Thursday’s Gossan (it is home to a historic low-grade 110,000t copper supergene resource at surface) is to the south-east of the deep drilling program at the broader Stavely copper-gold project area where the company has spent close to five years looking for the juicy core of a big porphyry copper-gold system.

The shallow drilling within the UFC comes as Stavely pauses the deep porphyry program to review the ton of data collected from recent drilling to better inform future drilling to “vector” in to a juicy porphyry source.

Stavely’s executive chairman and veteran geologist Chris Cairns made the very true observation that it was not every day that an explorer comes across 40% copper hits, with significant gold and silver values as well.

Importantly, Cairns noted that a follow up hole 160m to the south-west of the discovery hole has also intersected a thick zone of structurally controlled semi-massive to massive sulphide mineralisation.

“We are eagerly awaiting assays from that hole and results from further step-out drilling which is currently in progress,” he said.

Cairns said the new shallow and structurally controlled model had clearly expanded the “search space” at the project.

He said number of previous shallow historical air-core and RC intercepts of massive sulphides are now seen to be much more significant than previously thought, making them high-priority targets for diamond drill testing.

“Additional mineralised structures are thought to exist without surface expression but are expected to provide a strong conductive response to a ground EM survey which is being designed, also as a priority.”

RED 5

It was mentioned in this space back in April that the gold stock with the go-getter personality trait for a name Red 5 (ASX:RED) was one to watch.

The gold price was under pressure at the time and the over-the-top share prices of the leading issues meant that greater value was to be had amongst the second tier producers.

Red 5 was trading at 11.5c at the time and was attracting interest on the strength of an emerging bulk mining opportunity at its King of the Hills (KOTH) mining operation near Leonora in WA.

That Red 5 is now at 31c tells you that the story has indeed unfolded, with a pre-feasibility study released in early August outlining the potential for an initial 10-year bulk mining open cut operation which could deliver 140,000oz of annual production at an average AISC of $A1,167/oz.

The project has been moved into a full feasibility study which should be completed by (calendar) mid-2020.

It needs to be remembered too that there is upside potential to the story from the future inclusion of 1.1Moz of underground resources and what is coming from a regional hunt for new oxide deposits to provide an added sweetener.

Mining continues at KOTH form the narrow high-grade veins, and increasingly, bulk stopes, with the ore trucked the 80km to Red 5’s Darlot operation for processing ahead of KOTH once again becoming a standalone operation.

It is against that backdrop that it is worth noting that the research desk at Morgans reckons the re-rating of Red 5 is not done just yet. The firm has this week initiated coverage of the stock, setting a 50c price target (61%) upside.

“The KOTH bulk mining operation is forecast by the company to commence in early (calendar) 2022, and current expansion scenarios bring Red 5 into the ranks of Ramelius (RMS), Silver Lake (SLR) and Gold Road (GOR) – about twice Red’s current market cap,’’ Morgans said.

It said that there was also the possibility of further exploration/expansion upside possibly elevating production by Red 5 to Saracen (SAR), St Barbara (SBM) and Regis (RRL) levels (about six times the current market cap).

Morgans’ target price assumes FY2020 and FY2021 gold prices of $US1,500/oz and $US1,405/oz respectively, with a long-term price of $US1,250/oz. For comparison purposes, Macquarie’s recently upgraded gold outlook is for $US1,469/oz in FY2020, $US1,606/oz in 2021, and a long-term price of $US1,400/oz.

Macquarie outlook

Talking about Macquarie, it has just released its commodities compendium which pulls together some of the recent big changes in its commodities outlook.

There is lots of bearish stuff in there about macro headwinds but given spring has sprung, there is more interest here in the upside catalysts around that might deliver demand recovery.

“We see three short-term bullish catalysts for demand/prices (in likely chronological order): 1. Larger stimulus in China in 4Q19, boosting Asia's seasonal restock (Dec-May); 2. Deferral of China's winter pollution control policy (Nov-Mar), offsetting weak industrial activity; 3. A US/China trade resolution,” Macquarie says.

There is no doubting the macro stuff is important, but so too are supply/demand fundamentals as noted by Macquarie. That comes through in its form guide on which of the commodities can be expected to perform in the next 12 months relative to spot prices, and those that won’t.

Its most preferred in the next 12 months is cobalt (Glencore's 'Mutanda cut' provides short-term support), tin (following its mid-year sell-off), and thermal coal (which has been hit hard by coal/gas surpluses).

The least preferred were iron ore (recovering supply and weakening steel demand), zinc/lead (on-going expansion in mine supply versus subdued demand) and you guessed it, lithium (competitive supply surge still in play, capping all product prices).

Lithium will have its day though, along with the other key battery materials nickel and cobalt, but it is a five-year horizon on Macquarie’s reckoning.

The losers in five years should not surprise – coking and thermal coal (seel demand moderates/evolves to EAFs and power industries diversify fuel options), steel (China’s transition to developed nation status reflected in moderating demand, and palladium/rhodium (reversing the on-going outperformance of the auto catalyst materials).



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Michael Whelan

Good article Barry, thank you and good that one of the LiveWire regulars gives the mining and resources stocks some focus. Other Victorian miners apart from Stavely include Navarre, Catalyst and Chalice (though largely an asset trader) so hopefully more promising gold strikes down here in Victoria.