Cobar copper play feeds investor appetite for consolidation in red metal sector

Consolidation of copper interests in the Cobar region of central New South Wales has been a slow train coming.

Putting together stranded assets with existing treatment capacity to create more relevant players in the under-represented ASX copper sector has long been the wish of investors, with the Cobar region considered as ripe as they come for some action.

But there has been precious little action over the years despite pressure building to cut deals as a result of the copper thematic (deficits loom) steadily driving prices for the red metal higher, making consolidation moves all the more attractive.

As it is, the pressure to consolidate is at bursting point thanks to the remarkable 32% rise in the copper price (now US$5.97/lb) from last year’s annual average of US$4.51/lb.

It is against that backdrop that the ever-acquisitive Cobar copper/gold producer Aeris (AIS), led by Andre Labuschagne, has padded up to cut a deal with a long-time honest toiler in the Cobar exploration space, the now Nick Woolrych-led Peel (PEX).

It’s a takeover of Peel by Aeris but it’s not a takeover, with Aeris to acquire Peel’s South Cobar copper project (the Mallee Bull and Wirlong deposits) by acquiring 100% of Peel and then Peel’s remaining Cobar assets being demerged into a NewCo to be owned by Peel’s shareholders.

All up, Peel shareholders are to receive 0.3363 Aeris shares for each Peel share (valued at 19c per Peel share) and one NewCo share for every 4.6 Peel shares (valued at 4.4c per Peel share).

The 23.4c a share imputed value to Peel shareholders represents a 46% premium to Peel’s pre-bid price of 16c a share. The stock traded up to 20c a share in response to the deal but closed at 18.5c, a handy 15.6% gain.

As would be expected, Aeris closed 4.5c or 8% lower at 52c to account for the dilution of exposure to its existing production interests (Tritton copper in the Cobar region and Cracow gold in NSW).

The fall can be considered transitory as  Aeris goes from a copper/gold producer with a $676m market cap to a harder to ignore $850m market cap. Greater relevance can deliver a higher market rating.

A re-rating will also be in order as the enlarged Aeris will have greater index inclusion potential, as well as the to the ability to now map out a 10-year-plus production profile at Tritton, capturing higher a NPV rating for the project.

Aeris’ current FY2026 guidance for Tritton, where there is excess mill capacity, is 24,000-29,000t of copper, along with up to 10,000ozs of gold and 263,000ozs of silver.

It is enough to rank it amongst the biggest ASX copper stocks where valuations for 30,000-50,000tpa of annual production can run in to the billions of dollars. The issue for Aeris has been mine life at Tritton.

The Peel deal puts in a fix as the consolidation move with Peel gives the Tritton mining and processing hub access to more than 500,000t of contained copper.

NewCo:

Peel was last mentioned here in November when it was a 9.9c stock on the strength of it being a potential target for other players in the greater Cobar region, particularly those with operating mills like Aeris.

But more than that was the expectation that the arrival of former New World Resources boss Nick Woolrych at Peel as MD would lead to some action at the successful but drifting explorer.

Woolrych joined Peel in September last year after wrapping up the takeover of New World, with its 31,000tpa copper equivalent Antler development in Arizona, by the private equity group Kinterra.

It was a hotly contested battle with other bidders, with Kinterra winning the day with a $US160m bid which represented a 168% pre-bid premium. Woolrych obviously saw the opportunity to unlock value at Peel.

Peel has tinkered with the idea that its collection of discoveries in the Cobar region could one day support a standalone processing plant at Mallee Bull, supported by its other regional discoveries like Wirlong.

But the assets have remained stranded, with the logical  solution now being to send the ore from the projects being developed up the road to Tritton for processing, a distance of 130km and 100km respectively.

Apart from Peel shareholders gaining 20.5% of the enlarged Aeris, the NewCo they will own will  hold its remaining Cobar interests plus remaining cash. NewCo will be juiced up through a $4m underwritten IPO capital raising at a proposed 20c a share.

The remaining assets to be housed in NewCo are a  decent collection too, led by the Southern Nights complex (the Southern Nights and Wagga Tank deposits) which comes with a combined mineral resource estimate of 10Mt grading  7.69% zinc equivalent for 768,000t contained.

It hasn’t knocked the lights out like copper but zinc itself has been on a bit of a tear of late, rising 18% from last year’s calendar average to US$3,406/t. South32 will tell you that the zinc thematic is the same as that for copper – rising demand, existing production falling and a looming supply crunch.

NewCo will also hold the small but sweet-grade May Day deposit which comes with a mineral resource estimate of 1.61Mt for 51,000oz of gold, 1.3Moz of silver, 15,000t of zinc and 10,000t of lead. It is open down-plunge and along strike.

Having done a deal on the stranded copper assets, there is every reason to suspect that NewCo will be open to value-creation deals on its inherited assets. either as a buyer or seller. Buoyant base and precious metals prices mean it is a good time to be cutting deals.

But Peel’s board and management have also indicated the search for the next value creation deal won’t necessarily be restricted to the Cobar region, with acquisitions in Australia and the US part of the consideration.

Woolrych’s experience at New World in the US copper market will be handy in assessing opportunities of which there are plenty in a US$6/lb and rising copper market. A deal on an Antler Mk 11-type asset (it’s a former high-grade producer being brought back to production after some modern day exploration TLC) would not surprise.