Why Glencore’s decision to shut Mt Isa could spark regional consolidation

Next door neighbours Hammer and Carnaby highlight the scope for mergers. Plus, M&A value-creation can take time and brokers line up to back rare earths play Meteoric.

By Barry FitzGerald. 

Global Markets 3

Glencore’s decision to bring copper mining to an end at the Mount Isa after 60 years has got junior explorers/developers in the region rethinking their pathway to eventual production.

They have long banked on the iconic Mount Isa being their processing solution.

But Glencore is bringing down the shutters on its underground copper mining and copper concentrator in the second half of 2025. The copper smelter and refinery continue on to 2030 but with no guarantees.

While a spurt in copper prices to $US5-$6/lb could change all that, copper juniors exploring the broader Mount Isa Inlier had best start thinking about getting into production without Mount Isa in the background.

To do that, scale will be important. And to achieve scale, a wave of consolidation needs to happen.

There are more good grade but smallish copper deposits in the region than a stick can be poked at. Some have standalone potential at the concentrate production level, at a push in a sub-$4/lb copper market.

But start bringing them together and the standalone potential lights up. It is why 2024 is tipped to be a year of consolidation in the region as much as it has been about discovery in 2023.

The most obvious consolidation opportunities sit over in the eastern fold belt of the Mount Isa inlier, about 70km from Mount Isa.

Take a look at a map of who owns what and where, and it is wonder that a wave of consolidation has not kicked off already.

One of the more obvious consolidation opportunities was highlighted this week when Carnaby (ASX:CNB, market cap $118m) and Hammer Metals (ASX:HMX, $43m) reported latest exploration results from their respective Mount Hope Central and South Hope projects.

They are literally next door to each other and share a mineralised trend that has been yielding nice copper results (38m at 3% copper and 0.3g/t gold for Carnaby announced this week, and 34m at 2.5% copper and 0.5g/t gold for Hammer this week).

Carnaby’s Mount Hope Central is the more advanced and has a maiden resource of 8.3Mt at 1.6% copper. It sits on a postage stamp-sized and 0.2g/t gold tenement surrounded by Hammer’s ground.

There is nothing to suggest the pair are thinking about consolidating their respective positions. But maybe they should be.

Having said that, both companies are much more than their Mount Hope interests. But again, take a look at a map at their broader Inlier positions.

In the short-term, both also come with near-term exploration excitement potential.

Hammer’s is a lithium drilling program in the New Year at its Yandal project some 38km from Liontown’s (ASX:LTR) Kathleen Valley development while Carnaby has started a maiden drilling program at its Wimberu farm-in project with Rio Tinto within the Inlier.

M & A in skittish markets:

The mining market remains as skittish as all get out – not the ideal market to be pushing through some pre-Xmas M & A.

It’s why there was a particularly cold reception to Evolution’s (ASX:EVN) $US475 million pick up of an 80% stake in the Northparkes copper/gold mine in NSW and to a lesser extent, Boss Energy’s (ASX:BOE) $205 million placement to fund its push into a second uranium production front in the US.

Come Thursday’s market and Evolution was 12% lighter than it was before the Northparkes deal was announced at $3.65 a share, which was also 4% below the $3.80 a share paid in the supporting $A525 million institutional placement.

Boss in Thursday’s market was down 8% on its pre-deal price at $3.82, which was a noticeable but not Evolution-sized 3.2% discount on the $3.95 a share paid in its institutional placement.

The good news in all that is that retail punters can pick up the stocks in both at discounts to what they were before the M & A deals were announced and presumably, capture the upside from the M & A activity that encouraged the institutions to back the respective managements at higher price levels.

So it is now over to Evolution to convince one and all that Northparkes is a win for the company. Boss needs to manage a successful commissioning of its Honeymoon project and the restart of its “new” Alta Mesa project.

Management at both Evolution and Boss know what they’re doing and sensibly, they have not kowtowed to the view that no M & A is good M & A. Rebuilding their pre-deal market values will take time, and the value uplift beyond longer still.

Some faith is required in the ability of management to ensure the newly acquired interests deliver in the longer-term. To borrow from the late and great investor Charles Munger, it could be a case of the big money not being in the buying and selling, but in the waiting.

Meteoric:

Assessing what was the best mining discovery of the year has been made all the easier by the conga line of broker and investment bank analysts singing the praises of Meteoric (ASX:MEI) and its Caldeira ionic clay project in Brazil.

Price targets/valuations on the stock are all plus 40c a share which is kind of interesting given the stock has been trading around 20c,

The latest addition to the conga line was Barrenjoey. In a 30-page tome on the company and Caldeira, it arrived at a 50c a share price target and a 44c a share valuation.

It is worth remembering that 2023 – and the back of half of 2022 - has been a tough year for rare earth stocks generally. Prices for the key magnet rare earths have fallen from around $US150/kg to $US60/kg.

But as mentioned here recently, the ASX rare earths king Lynas (ASX:LYC) remains convinced growth in demand from EVs and wind turbines is set to accelerate through to 2030.

There are serious doubts that the demand can be met, with Lynas also saying there is already more demand than it can serve.

Then there is the over-arching thematic that the western world needs to break China’s grip on the rare earths market, one underpinned by its domestic supply from ionic clays.

But back to what Barrenjoey had to say about Meteoric.

“The rare earth market is highly strategic, and a difficult one to enter; particularly so during 2023, when the prospects of most greenfield projects have dimmed from a cyclical decline in rare earth prices and high capex inflation,” it said.

“We believe Meteoric’s prospects are materially better than peers due to the uniquely high-quality nature of the resource (large scale, high grade and recoverable).”

Getting down to tin tacks, Barrenjoey modelled a 5Mtpa project, yielding 3.2ktpa of NdPr oxides contained in a mixed rare earth carbonate (MREC).

“We model first production in 2027, capex of $US200m, and opex of about $US30/kg (real) of contained NdPr, or about $US42/kg on a payable basis. Our NPV of 44c is based on an NdPr price of $US85/kg,” it said.

“We believe Meteoric’s project requires a NdPr price of about $US50/kg to earn a greater than 15% IRR, well below hard rock greenfield projects that need $US100/kg.’’

That says it all really.

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