Australian bourse gains new copper producer as Hillgrove fires up

While Metals Acquisition will make its much-anticipated debut next week, this week was all about Hillgrove Resources.

The low-key company announced on Monday it had produced the first copper concentrate from its Kanmantoo underground mine in the Adelaide Hills.

Hillgrove managing director Lachlan Wallace told this week’s RIU Explorers Conference that it was hard to find genuine pure-play copper exposure on the ASX.

“OZ Minerals is gone, DeGrussa is finished and the Queensland copper fields are still recovering from some pretty severe flooding last year,” he said.

“The reality is, it’s actually pretty thin on the ground if you want pure production exposure in the copper space but that’s exactly what Hillgrove offers with the Kanmantoo underground project.”

Canaccord Genuity analyst Tim Hoff said first production put Hillgrove in a very exclusive club.

“With the recent suspension of mining activities at the Cobre Panama mine (circa 1.5% of global supply in 2022), the commencement of production is well-timed as investors look for pure play copper exposure in reliable jurisdictions,” he said.

A share price of A7.4c gives Hillgrove a market capitalisation of A$140 million.

Canaccord has a speculative buy rating and price target of A10c.

Low-risk start-up

Kanmantoo produced 137,000 tonnes of copper and 55,000 ounces of gold from open pits between 2011 and 2020.

The project has a 3.6 million tonne per annum plant and a fully operational tailings storage facility, as well as mains power at a cost of just A13c per kilowatt hour and a residential workforce.

Because of the existing infrastructure, the stage one underground mine had low capital costs of just A$25 million, which was fully funded via a A$38 million equity raising in February 2023.

The initial 45-month mine plan is targeting total throughput of 4.5 million tonnes for production of 43,500t of copper and 11,500oz of gold at all-in sustaining costs of US$2.56 per pound of copper.

Post-tax free cashflow is forecast at A$205 million, while the stage one project has a net present value of A$165 million, an internal rate of return of 231% and a payback period of nine months.

Hoff forecasts Kanmantoo to produce 5000t of copper this year at AISC of US$3.39/lb and 14,300t of copper at AISC of US$3.14/lb.

He forecasts EBITDA of A$28 million in 2024.

Hillgrove remained well-funded with A$10 million in cash and no debt.

Importantly, the company has A$235 million of carried forward tax losses and franking credits of A$17.6 million, which Wallace said would allow Hillgrove to pay dividends “at the appropriate time”.

Wallace expects first cashflow this week.

“This is just the beginning of the opportunity to extract value from the Kanmantoo copper project,” he said.

Exploration upside

Hillgrove is firmly focused on growing the resource at Kanmantoo to fill the 3.6Mtpa mill.

“The 3.6Mt is a lot more than we need which means we can quickly translate anything we find into cashflow,” Wallace said.

Wallace said Hillgrove had a 100% exploration success rate since 2019.

The company has drilled 139 holes since 2019, which returned 163 economic copper-gold intercepts and a 600% increase in the resource to nearly 7Mt at 1.08% copper and 0.16 grams per tonne gold for 75,900t of contained copper.

“Our success rate is nothing short of exceptional,” Wallace said.

“Every time we’ve run drill programs, it’s translated to increases in our resource base from under a million tonnes in 2019 to just shy of 7Mt today.”

The resource only covers two of at least nine known lodes at Kanmantoo, all of which are fully permitted.

All lodes are open down-dip and along strike.

Last year, drilling at the Spitfire lode returned 45.4m at 1.19% copper and 0.12g/t gold, while Emily Star returned 71.7m at 0.89% copper.

An updated resource estimate, which will include maiden resources for Emily Star and North Hub, is currently being compiled.

The Kanmantoo Deeps target could be the big prize for Hillgrove. It has a sizeable exploration target of 50-80Mt at 0.8-.2% copper and 0.1-0.2g/t gold.

“To put that into context, our current mine plan is 4Mt,” Wallace said.

Hoff said the target appeared to be a downthrown fault offset from the main ore deposit.

“If a deposit of this size were discovered, it would be a significant event for Hillgrove, with an ore inventory that would justify higher throughput rates and extend the mine life,” he said.