Nev Power-led Killi aims to be niche supplier of high-value iron ore to low-emission mills

Gold explorer Killi Resources bucked the trend of major weakness in mining equities during the week.

It did so by making a magnetite acquisition in Western Australia’s Mid-West region, heralding among other things that its chairman, former Fortescue MD Nev Power, is back in the iron ore business.

The scrip and royalty acquisition of the Lodestone project, 200km East of Geraldton, was warmly received with Killi shares initially gaining 1.5c or 6.4% to 25c, giving it a market cap of $90 million on its expanded issued capital.

Existing magnetite operations in the Mid-West, and the Pilbara for the matter, do not have a good reputation with investors. But just like the Castrol add of the 1980s stating oils ain’t oils, so  it is with magnetite ore bodies.

Lodestone – currently ranked at 110Mt inferred – is of the recrystalised type where contact metamorphism either side of the ore body has fully recrystalised the magnetite over some 25km of strike.

So much for the geology lesson. What it means is that Lodestone is amendable to the production of direct reduction pellets for the fast-growing and environmentally friendlier electric arc furnace (EAF) method of steel production.

The processing route at Lodestone could also be much cheaper than competing magnetite projects because the coarse-grained nature of the deposit means less grinding is required to produce up to a 70% concentrate.

Compared with the 62% iron ore benchmark which the Pilbara iron ore producers struggle to meet nowadays, direct reduction pellets can attract a price premium of up to 40%.

And unlike the Pilbara iron ore producers which face a plateau in demand, there is a shortage looming for direct reduction pellets from the fast-growing EAF sector.

Think about an initial project at Lodestone producing 5mtpa of high-value product for a steel industry going ever greener, and the reason why the market liked Killi’s acquisition despite the recent chequered history of Mid-West (Ansteel and Baowu Steel) and Pilbara (Fortescue) magnetite operations comes in to focus.

Apart from its unique style of magnetite, Lodestone is also well located in regard to things that make iron ore projects of any type work – rail, roads and port. What’s more, unlike the crowded Pilbara space, infrastructure in the Mid-West is under-utilised.

Lodestone is also positioned nicely for grid power.

Killi intends growing the size of the resource at Lodestone and reckons it could have a scoping/PFS study ready to release in the December quarter next year, with completion of environmental studies and permitting to follow shortly afterwards.

Killi was mentioned here in late March after its market cap had run up from $7m to $36m on Power becoming non-executive chairman and Steve Parsons and Mike Naylor of the Richardson Street success machine (Bellevue, FireFly, Andean Silver, Alicanto, Cygnus and others) joining as consultants.

At the time of Power joining, Killi flagged it was looking to conduct due diligence on “potential new growth opportunities” as well as tick along its gold exploration interests in WA and Queensland.

To fund the step into Mid-West magnetite, Killi is raising $15m from a two-tranche placement at 22c a share.

Power’s existing stake in Killi will be diluted to 4.6%. Parsons will hold 14.61% and Naylor 2.67%, with Killi founder Hamish Halliday to hold 13.76%, as well as becoming a non-executive director.

Parsons and Halliday hold 45% each of the private company that is vendoring Lodestone in to Killi.

Develop (ASX:DVP):

Bill Beament is not one to do things by halves.

And so it was during the week when his Develop (ASX:DVP) gave the go-ahead for its $450m Sulphur Springs copper-silver-zinc project in the Pilbara and the $40m stage 1 development of its Pioneer Dome lithium project south of Kalgoorlie.

The go-aheads were expected. The capex cost at Sulphur Springs was higher than the market was expecting but everything costs more nowadays and elevated pricing for its three metals makes for a quick payback.

The dual go-aheads signalled what Beament described in AFL terms as the end of the first quarter for the company following his arrival at the former Venturex in 2021 after his transformational years at Northern Star.

Bell Potter left its Develop target price at $7.10 a share while Canaccord nudged its price target up from $7 to $7.20. Develop closed 17c higher at $6.27 in Thursday’s market for a market cap of $2.06 billion.

A key feature of the go-aheads was the involvement of the world’s biggest commodity trader Trafigura.

It is to provide a US$400m funding package and offtake contracts for the two projects, and a favourable refinancing of an existing facility for Develop’s Woodlawn copper-zinc mine near Goulburn in NSW.

But what really got the market’s interest up was a co-operation agreement between Develop and Trafigura to partner on “potential future opportunities”.  It could make for a very interesting second quarter for Develop.

“They see that we can be the base metal champion on the ASX,” Beament said of Trafigura. Watch out South32. Watch out Sandfire.

“They want to see us grow our business beyond what we’re doing,” Beament told an investor call. “They know we’ve got the team and the capability.”

Beament said that there was no better amount of intelligence on metals and projects than in Trafigura’s data base.

“It’s really cool that this was their idea as well, too by the way,” he said “And they’re putting their money where their mouth is.”

Hammer Metals (ASX:HMX):

The benefit of having a big commodities trader in your corner came through in the deal announced on Thursday for Larvotto (ASX:LRV) to acquire the hardy Queensland copper and WA gold explorer Hammer Metals (ASX:HMX) for $61.2 million.

The mighty Glencore is to kick $15m into Larvotto through a share issue at a premium price of $1.53 (Larvotto closed Thursday at $1.12), with the proceeds earmarked to advance the combined copper and critical minerals projects of Hammer and Larvotto in the Mt Isa region.

The deal comes as Larvotto is about to start production at its Hillgrove gold-antimony project near Armidale in NSW.

Hammer shareholders are to receive Larvotto shares to the value of 6c a Hammer share, as well as a share imputed to be worth  0.7c per Hammer share in a spin-out company which will hold the WA gold assets of Hammer.

The imputed 6.7c a share all up value represents a 75.9% premium to Hammer’s 30-day VWAP up to and including June 3.

The premium is something less after taking in to account a recent run-up in Hammer’s share price in response to commentary about its critical minerals appeal on a well-followed podcast.

It has been mentioned here previously that there is a disconnect between the equity market’s valuation of copper stocks and the much higher price being paid by industry players like Larvotto.

The takeover also means that the number of ASX junior copper stocks like Hammer continues to shrink as the industry players buy in to the copper thematic of record prices for the red metal as it lurches into a potentially drastic supply deficit.

Hammer’s name can now be added to those that have been taken over against the backdrop of the thematic. Others to go have included Xanadu, Rex Minerals, New World Copper and Cygnus. On the bigger scale, the names include OZ Minerals and MAC Copper.