Record gold prices and copper’s push higher in the opening weeks of the year is having a telling impact on the economic assessments of copper-gold development projects penned before prices really started to heat up.
So a company with a development opportunity on its hands might have plugged in $US3.75/lb copper and say $US1,800/oz gold price assumptions a while back to arrive at what they could say were “robust” projects.
But if the assessments were being written today using spot prices ($US4.28/lb copper and say $US2,900oz gold), it stands to reason that all of the key metrics in “updated” preliminary feasibility studies would have to be marked much higher, spectacularly so in some cases.
The market is good at spotting such valuation boosts and can quickly mark-up share prices to capture some of the value uplift, particularly when there is a deep faith, as there is now, in copper and gold prices at least maintaining their higher levels.
But not all companies get to benefit from what might be called the spot price re-rate, not immediately anyway. Cygnus (ASX:CY5) is an example.
It started out life as a Canadian lithium explorer and continues to hold projects in the battery material which will come into their own in time.
But a game-changing event occurred last when Cygnus merged/took over the TSXV-listed Doré Copper Mining Corp. The deal was announced last year but was only completed early in the new year.
The deal delivered Cygnus the historic Chibougamau copper-gold project near the mining town of the same name in central Quebec.
Doré had been working away at becoming a 24,000tpa copper equivalent producer at the project via a proposed hub-and-spoke operation where a collection of nearby former mines/deposits would be processed at an existing 900,000tpa processing plant some 17km from Chibougamau.
It even posted a Canadian-style preliminary economic assessment (PEA) of the proposed project back in 2022. Cygnus hasn’t been able to refer to the PEA under ASX and ASIC guidelines because the life of mine plan included a significant component of inferred resources.
Fair enough. But the PEA is still out there and was referenced extensively by Doré in a fine example of full disclosure to its shareholders before they voted in December for the merger to proceed.
It is now noted here that the PEA used $US3.75/lb copper, $US1,820 gold and a USD:CAD exchange rate of $1.28. And here we are with near-on $US4.30/lb copper, $US2,900/oz gold and a USD:CAD exchange rate of $1.42.
Put all that in to the mix, along with some other considerations, and at spot prices at least, the PEA’s arrival at a pre-tax cumulative cash flow estimate of $C745 million could be reworked to more $C1.3 billion.
It points to a value uplift without adding one tonne of ore to the story.
Cygnus can’t talk to all that but it has got to be wondered if its current market of $110m at 13c a share is reflecting any of the suggested upside to its Doré pick-up on metal and currency movements alone.
On that score, a recent research note from Canaccord said that the 2022 PEA formed the basis of its unrisked valuation for Cygnus of 60c a share, with a price target of 30c a share.
It said the Doré acquisition “screens as class leading and backed by an experienced team of industry clout”.
Cygnus is just getting busy on the ground at Chibougamau with the drill bit. The industry clout referred to is a nod to Cygnus being out of the same stable that created serious value with the drill bit at Bellevue (BGL), FireFly (FFM) and the no longer-listed Mincor, among others.
It has already reported some high-grade hits outside of the known resource and now that the merger/takeover is complete, there will a lot more said – without mentioning the PEA of course – about the potential to grow the story at Chibougamau.
SPARTAN (SPR):
Talking about creating serious value with the drill bit, Spartan (SPR) has done just that in the last couple of years.
What was a $110m company in May 2023 is now a $1.75 billion company thanks to the 2.3Moz of high-grade gold (9.32g/t) discovered a couple of hundred metres from Spartan’s currently idled Dalgaranga treatment plant in the Murchison.
Having the takeover spotlight shining over it thanks to its Murchison neighbour, the ever acquisitive $2.9 billion Ramelius (RMS), sitting on the register with an itchy 19.9% stake, adds to the market’s focus on the stock.
Having said that, Spartan’s share price has been drifting sideways in the year to date.
It is something that Spartan’s executive chairman Simon Lawson readily admits, wearing the blame like every good Spartan solider would.
In one of the most refreshing commentaries ever seen from a mining company boss, Lawson took to social media on Wednesday night while on his way to the Resources Rising Stars’ “Summer Series” investor conference in Brisbane.
Lawson’s mea culpa read: “Spartan’s share price has seen a bit of pressure coming into 2025 and I take full responsibility for that and apologise to our shareholders.
“Simply not enough newsflow, not fast enough, not good enough, no excuses.
“(But) with two surface rigs already into their work, a third surface rig arriving soon, our first underground drill rig on-site this week with a second not too far behind, 85,000m of drill metres funded and underway, and our Juniper underground decline already over halfway to the 1.45Moz at 8.81g/t Never Never gold deposit, who thinks the Spartan excitement machine is going to be quiet for much longer?
“P.S. To those frustrated about timelines on potential gold production, myself included!, we are getting our work done to be able to publicly talk about that! Study due mid-year ’25”.
