Talisman’s juicy iron ore royalty enabling it to roll dice on big exploration plays

Junior explorers can be stopped in their tracks in a risk-off market like that being endured now thanks to the US-China trade war.

The ability to go back to the well for another dollop of cash to keep the doors open, let alone get cracking on an exploration project with the drill bit, can fast disappear.

Funds can still be raised for a decent exploration program in the right commodity but because share prices are under pressure, such raisings are heavily dilutive.

Much better to have a steady flow of cash coming in the front door to fund the exploration effort.

Talisman (ASX:TLM) is a rare thing on the ASX in that the $28 million (15c a share) explorer does have a steady flow of cash, courtesy of its uncapped 1% gross revenue royalty on production from Mineral Resources’ Wonmunna iron ore mine in the Pilbara.

The royalty is good for about $8m a year and MinRes is drilling now to bring another 55Mt of iron ore in to the mine life plan, meaning the royalty –  it has delivered $27.6m to date to Talisman – will keep paying out for years.

When an explorer has that sort of cash coming in – Talisman has cash on hand of $5.8m currently – it can afford to be more adventurous than the average hand-to-mouth explorer.

As Talisman MD Andrew Munckton put it last week, the royalty gives the company the capacity to undertake higher risk but (potentially) higher reward exploration.

Munckton was speaking at last Thursday’s Resource Rising Stars Gather Round conference in Adelaide.

The major backers and directors of Talisman – including the chairman and 19% shareholder Kerry Harmanis – are guys who enjoyed big-time exploration success when their Jubilee Mines discovered the high-grade Cosmos nickel mine in 1997.

Jubilee was later sold to Xstrata in 2007 ahead of its merger with Glencore for a cool $3.2 billion.

Munckton said that Jubilee was in Talisman’s DNA. “Without being modest, we are trying to repeat the success of Jubilee, even if we get 20% of a Jubilee, that will be extremely helpful and profitable for shareholders,” Munckton  said.

“If you like a bit of a punt, and you are interested in not being diluted over time by capital raisings, then come and have a look at Talisman,” the veteran geologist and company manager said.

Talisman’s portfolio includes two projects in NSW covering porphyry copper and Cobar-style lead-zinc-silver.

Some interesting results but nothing yet to move the dial in a big way.

It might be different over in South Australia where Talisman has just completed three holes in to the historic Mabel Creek iron oxide copper gold prospect in the northwest corner of the Gawler Craton, home to BHP’s trio of IOCG mines.

Cover at Mabel Creek is 200-300m so grade and size will have to be good to cause excitement.

“We have just finished the drilling program and the core is being cut as we speak,” Munckton said. Assay results are likely in three or 4 weeks.

“Once we have got the assay data and all the wide range of chemistry that you do on them, we will release those to the market.”

Munckton added that the Talisman crew are “pretty excited about what we see there”.  Good luck with the assays. But the bigger point today is that thanks to its iron royalty, Talisman can move from one high risk/high reward prospect to another until one sticks, Jubilee-style.

Nordic Resources (ASX:NNL):

Nordic Resources’ (ASX:NNL) Pulju nickel-copper sulphide project in Finland’s Lapland is recognised as one of Europe’s best chances of building out its critical and strategic metals supply chains.

BHP thought so, with Nordic having been in the first cohort of junior explorers in its Xplor program which seeks to accelerate the discovery of Tier 1 deposits through mentoring and a $US500,000 cash injection.

But nickel is not the buzz metal it once was because of the flood of material coming out of the Chinese-controlled Indonesian industry. The stainless steel and battery material will have its day in the sun again, but probably not well in to the next decade.

All that is reflected in Nordic’s modest market cap of $11.2 million at 7.6c a share. It is not a lot considering that the small amount of drilling on its district-scale (240sqkm) Pulju ground has already yielded the Hotinvaara deposit (862,800t of nickel with cobalt and copper).

Hotinvarra is a low-grade affair but there is a higher-grade core and its mineralisation does lend itself to producing a high-grade concentrate (18%). There is a lot more exploring to do to with the clear potential for higher grade deposits to be found.

That’s all well and good but recognising that Pulju would provide little more than a backstop to its current market cap while nickel remains in the dumps, Nordic has sensibly added another leg to its story – Finnish gold, leveraging off its in-country capabilities.

It is picking up the 814,800oz gold equivalent (631,000oz gold and 38,000t of copper) Kopsa project in a mainly-share deal with Swedish explorer Northgold which is giving up the ghost because it can’t gain traction for the project on the Nasdaq First North Growth Market, whatever that is.

Northgold plans to go in to voluntary liquidation on completion of the deal and distribute the 70m Nordic shares it will receive to its shareholders. On Nordic’s expanded issued capital of 264m shares after the deal (including shares from a  $2.85m placement), the old Northgold shareholders will hold about 26% of Nordic.

At its current market price, Nordic’s market cap grows to $20.1m which is still not a lot given the nickel resource, and now the gold-copper resource. It will have one of the lowest EV/resource multiples on ASX in either metal.

Nordic’s placement gives it the funds to get cracking on a drilling program while it works away in the background on a scoping analysis on Kopsa’s near-term production potential. Taking advantage of existing road and rail infrastructure to third party mills for a toll treatment operation is a possibility.

The grade is 1.09g/t gold equivalent (0.85g/t gold and 0.17% copper), all in a shallow position and with lots of extensional exploration upside, and at depth where there just might be a copper dominant copper porphyry lying in wait.

Kopsa has been moving through the permitting process which can take a long time in Finland. But there is a process and the country rates highly as a mining destination – Agnico-Eagle operates the country’s biggest gold mine (Kittla) – by those who monitor such things.

Rare earths:

President Trump has just ordered up an investigation in to the vulnerability of America’s critical mineral supply chains, saying that there are risks to national security, defence readiness, price stability and economic prosperity and resilience.

His executive order stated that “major global foreign producers of processed critical minerals (read China) have engaged widespread price manipulation, overcapacity, arbitrary export restrictions, and the exploitation of their supply chain dominance to distort world markets.”

Really?

The Trump administration knows full well that America is vulnerable and by that by starting a tariff war with China, Beijing would fire off a gatling gun of critical minerals bans and export controls in response.

Most recently Beijing has slapped on export controls on a range of medium to heavy rare earths critical to the permanent magnets that find their way in to defence systems, robotics, EVs and so on.

So while the Trump administration wastes 270 days investigating something it already knows – America is vulnerable – the ASX rare earth stocks have been enjoying a wave of buying support from  their beaten up levels.

It didn’t seem to matter if their projects were in Australia, Africa, Brazil or the US. What was notable was that projects with a medium to heavy presence in their rare earths mix did the best. Brazilian player Meteoric was a star performer, rising 28% on Wednesday and 23% on Thursday.

When the investigator comes back and tells the Trump administration that there is a problem, Trump will be able to bypass Congress with his response. Specific critical mineral tariffs are likely. But more important for the ASX rare earths juniors is the likely marshalling of funds in support of new non-Chinese supplies for the long-term.