And it is doing so with a bang, rating the company as a Speculative Buy with a target price of 50c, well above its current share price of 20c.
Caravel Minerals (ASX:CVV) owes this robust valuation to its Caravel porphyry copper project, which the investment bank considers to be the largest undeveloped copper project in Australia with a resource of 1,180Mt grading 0.24% copper (and 48 parts per million molybdenum) for 2.84Mt of contained copper.
This is sufficient to fuel an attractive Pre-Feasibility Study, which outlined a 27Mtpa project capable of producing 60,000tpa of copper in concentrate at an all-in sustaining cost of US$2.37 per pound following an update in September 2022.
Initial capex for the project, which will have a 28-year mine life, is estimated at $1,584m inclusive of a $176m pre-strip and $309m for mining equipment.
Caravel will deliver cash flow of $5.6bn, generating pre-tax net present value and internal rate of return – both measures of profitability – of $1.5bn and 18% respectively using a copper price of US$4 per pound.
Canaccord noted that while the large plant would be relatively expensive to build, it is not uncommon for copper developers to undertake a 25% project selldown to a partner for upfront consideration equal to a portion of the future project value.
Under this model, this assumes a 25% sell-down for $200m given its estimated NPV 8% is $874m.
The company is also assessing options for vendor financing partnerships to reduce the upfront mining equipment costs, debt financing, equity strategic partnerships, prepayments and joint venture partners.
Canaccord also believes that with copper being essential to the energy transition due to its use in electric vehicles, charging networks, solar PV and wind, energy storage and upgraded transmission/distribution infrastructure, this is the time to own copper.
It reiterated its view that there is long-term structural demand growth potential for copper driven by new energy technologies and the broader energy transition.
This demand is important as Caravel is highly leveraged to the copper price.
According to the PFS sensitivities, each 50c increase in the copper price adds $900m to the NPV.
The investment bank added that its valuation of Caravel is similarly leveraged to copper, noting that its price target jumps 21% to 61c at US$4 per pound copper.
The company is currently progressing the Definitive Feasibility Study for the project with completion expected in the first half of 2024.
Initial results from a review by Lycopodium Minerals of the optimised PFS flowsheet has already indicated potential for plant simplification and increased capacity, and that opportunities to optimise the metallurgical flowsheet will be further investigated during the DFS.
High molybdenum prices could also make the byproduct a valuable addition to the Caravel development given that its original assessment was based on molybdenum prices of about US$20 per pound, well below current prices that are above US$30/lb.
This is especially true given that the additional circuit would be a final stage to processing that will not impact on primary copper production or recoveries.