Legacy Minerals (ASX:LGM) has moved into clear re-rate territory after a difficult-to-fathom poor market reaction to the release of a scoping study on the development potential of its Mt Carrington gold/silver and base metals project up Tenterfield way in northern NSW.
The company picked up the project in March 2024 from the administrator of White Rock Resources for the knockdown price of $190,000, believing that the big-time resource potential of the 17km-diameter caldera the project sits in has never been tested.
Mining across the caldera has a history dating back to the 1850s for gold, silver, copper, zinc and antimony but the focus was always on small time stuff, including in the 1990s when a small gold operation got going for a while.
Legacy has come at the caldera differently with a two-pronged approach of confirming the near-term production potential while also stepping up the hunt for new large-scale epithermal/porphyry deposits.
The scoping study on an initial development, released on May 4, represented confirmation of the near-term production potential and was very much the start of the story as it was based on only 30% of the gold and silver resource (700,000oz of gold and 24.3Moz of silver) Legacy has already established.
But some in the market didn’t like it. Ahead of the scoping study, Legacy was an already underdone 18.5c stock. It has since been sold off to as low as 11.5c, with a recovery in Thursday’s market to 12.2c for a market cap of $24.4 million (it’s holding cash of $8M).
The market cap is super modest when compared with the rest of the ASX-listed gold and silver explorers and developers, with Legacy at Mt Carrington being something of an oddity because it is across both precious metals, and base metals.
Convert the gold and silver resource estimate at Mt Carrington to 115Moz of silver equivalent, and Legacy is trading at around one-third the silver sector average per ounce of silver resource.
Use the gold equivalent of 1.2M oz and it is also left behind in the valuation stakes by its WA peers, most noticeably by the WA gold juniors with $30-$50m market caps based on small and short-lived toll treatment projects.
Legacy’s managing director Chris Byrne was at a bit of a loss on a Thursday investor call to explain the market’s cool response to the scoping study which outlined peak annual production in concentrate of 31,934oz of gold and 845,000oz of silver at a first quartile all-in sustaining cost of $1,061/oz at spot prices.
The NPV at spot prices was estimated at $716M and the pre-tax IRR came in at 38%.
Byrne said the company was surprised by the initial sell-off in response to the scoping study given it demonstrated an “exceptional all- in sustaining cost, high margins and long mine life (19 years)”.
“It (also) ticked a lot of boxes that the funding people want to see when they’re looking at projects – a strong reserve tail, lots of resource at the back end as well,” Byrne said.
“But I think we probably missed the mark a little bit with what some of the retail shareholders might have been expecting around NPVs and IRRs, and the actual total ounces of gold and silver per annum.
Having said that though, Byrne emphasised the scoping study was only the start of the story.
“A scoping study is the first step in the development pathway,” he said. “It’s something that gives you encouragement to say yep this project works, it makes money.”
Byrne said the focus now would be to optimise all aspects of the project to increase the plant size from the 1Mtpa considered in the scoping study to target higher production and deliver increased NPV and IRR values.
At the same time, under the two-pronged growth strategy, drilling high-priority exploration targets elsewhere in the caldera will continue, and at Legacy’s exploration joint ventures elsewhere in NSW, some of which have updates pending.
Uranium coiled:
The market has bought into the copper thematic in a big way. Record prices for the red metal against a backdrop of supply shortages has convinced investors copper is the place to be. BHP at a shade under $60 a share says as much.
But what of uranium? Morgans posed the question in an initiation report on the sector during the week.
“Uranium has moved to a structurally constrained market,” Morgans said. “Two decades of suppressed prices hollowed out supply, leaving an industry short of capital, development-ready projects and spare capacity just as reactor demand begins to accelerate.”
What’s more, Morgans said this uranium cycle (prices have edged up to two-year highs) is fundamentally different from those before.
“Past bull markets followed sentiment-driven sell-offs and temporary supply distortions.
“Today’s upswing is being driven by harder-to-reverse forces: a structural supply deficit, a geopolitical reshaping of nuclear fuel chains, and a demand surge with no credible non-nuclear substitute.
“This time, the demand side isn’t a forecast…it’s a construction cycle – China has 38 reactors under construction. The US is targeting 400 GW by 2050.
“France has legislatively removed its cap on nuclear generation (and) more than 20 nations have pledged to triple global capacity by 2050, with China, France, India, Russia and the US alone underpinning close to 1,000 GW of forecast capacity by mid-century.
“Every one of those reactors requires uranium from tightening global supply. Decades of underinvestment and supply gap shortfall continues to widen.”
It is compelling stuff all right and led into Morgans placing price targets on Paladin (ASX:PDN, $13.05), Boss Energy (BOE, $1.55) and NextGen (ASX:NXG, 20.80) – all of which are substantially ahead of their respective ruling market prices of $10.45, $1.20 and $14.86.
