Taking profits in De Grey; Chalice’s Julimar following in its footsteps

John Deniz

Paragon Funds Management

We wrote in June about De Grey’s ($1b market cap at that time) discovery at Hemi looking like it was world-class. With its market cap growing from $60m micro-cap at our entry in February to a ~$2b large-cap in September, we took profits and exited our position. A $2b market cap implies the market was ascribing a full US$200/oz on a 7moz gold discovery. Our modelling suggests this is likely and could indeed get a lot bigger as De Grey is still in its discovery-delineation phase. 

However, at a $2b market cap metallurgical complexities (processing refractory gold using pressure oxidation (POX)), which drive the project’s development capex and opex need to be de-risked. In our view, management are materially understating both capex (likely to be double initial expectations at $1b+) and opex may also negatively surprise, as POX is capital and power intensive. Note other jurisdictions using POX to achieve higher gold recoveries such as Alacer in Turkey and Polymetal in Russia both have access to much cheaper hydropower and labour.

Chalice has been another big winner for the Fund over the last six months. We entered the stock in early April, then a $145m micro-cap, for its greenfield Palladium & Platinum (PGE) and base metals discovery at Julimar in WA. It has since become one of the most exciting discovery-delineation resource stocks globally. Chalice has risen by multiples (currently ~$850m mid-cap) and is well place to continue re-rating, on the basis of its scale potential, strong economics and uniqueness of its PGE discovery. Mining magnate and billionaire Robert Friedland has also recognised Julimar’s ‘world-class’ asset potential, buying into Chalice in May.

Leading global examples of Chalice’s Julimar are rare: 

  1. Jinshuan in China which is 500mt over 6km, albeit with stronger base metals and lower PGE grades; and
  2. US$150b+ fully-integrated Norilsk in Russia, which boasts a 1.3bt orebody with higher PGE grades. 

Using spot commodity prices, Julimar is largely-Palladium (~2/3) which boasts outstanding fundamentals and is trading at US$2,300/oz, 20% higher than gold. On our modelling, Chalice has already delineated ~20mt of high-grade PGE’s (~2.5moz) over <1km (having drilled only 5% of their grounds), with the recent excitement in the stock premised on a new major 6.5km-long likely northern extension. 

Whilst we have taken some profits, the stock continues to offer strong risk-reward, with the northern extension a credible bonus option on even further material upside.

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John Deniz
Chief Investment Officer
Paragon Funds Management

John co-founded Paragon in 2012 and became principal and majority shareholder from 2017. John is responsible for executing the investment strategy and managing the Paragon Australian Long Short Fund. John has had 16 years in financial markets,...

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