Sleepy investors having a weekend lie-in on Thursday’s Gossan

Earlier this week, Stavely released the scoping study for its Thursday’s Gossan project in western Victoria.

The project is being envisaged as a single open pit and four million tonne per annum plant, with capital costs of $333 million for the plant and infrastructure, including 30% contingency, and $139 million for pre-production mining.

The project is forecast to produce a total of 170,000 tonnes of copper, 66,000 ounces of gold and 3.3 million ounces of silver over 13 years at all-in sustaining costs of US$3.76 per pound of copper.

Production in the first three years of the mine life is expected to be 19,700t of copper, 6700oz of gold and 325,000oz of silver per annum at AISC of US$2.75/lb of copper.

Based on metal prices of US$6.01/lb of copper, US$4509 an ounce of gold and US$72/oz of silver, the project has a pre-tax net present value (7% discount rate) of $818 million, internal rate of return of 40% and payback period of 2.5 years.

Net cashflow from operations is estimated to be $1.4 billion.

At spot metal prices, the NPV7 increases to A$905 million and IRR improves to 43%, while net cashflow from operations is projected to rise to A$1.5 billion.

“The scoping study indicates an NPV, at a discount rate of 7%, of $818 million, which effectively is $800 million more than our current market cap, so you can’t get much more leverage than that,” Stavely executive chairman Chris Cairns said this week.

“The IRR is 40% so that gives you an indication of how robust this project is at current public prices.”

Market barely notices

Despite the strong economics, Stavely’s share price has been little changed this week.

Cairns believes there are three reasons for the muted response.

“One, I think the market is just a little bit stunned by the robust nature and the magnitude of the numbers from our scoping study,” he said.

“I think the other is that a number of institutions are probably stepping back or holding back, expecting that we’re going to come to market and they’ll get some cheaper stock.”

Cairns said there were no plans for a raising in the near-term as the company still had just over $3 million cash at the end of June.

“We don’t really have the backing and support in terms of research from any of the major broking houses,” Cairns added.

GBA Capital released some commentary on Stavely, describing the scoping study numbers as promising and that the economics set a baseline for further de-risking.

“We expect that it’ll take a little while for the market generally to digest the magnitude of what we’ve released on Monday with this scoping study, but eventually we think that’ll sink in and there’ll be a response one way or the other,” Cairns said.

Cairns said Thursday’s Gossan’s production profile was of institutional grade.

“Aside from being shell-shocked, I think that a number of potential investors are probably standing back waiting for a capital raise and hoping that they’ll get cheaper stock and my hope would be that that somebody just has a look at it on an objective basis and pins their ears back and gets stuck into the market and starts to accumulate,” he said.

“We’re not trying to overplay the significance of this asset and that production profile and how robust the project is and also what we think the upside potential is.

“We haven’t even touched the underground yet, and we know that there’s some nice hits on both of those structures … so I think that we just need to continue to communicate the opportunity, continue to execute our programs in the field, including additional drill results, etc and that eventually the market will come to us.”

Copper M&A heating up

GBA analyst Joe Hansen noted that deep-pocketed buyers were on the hunt for copper juniors, as evidenced by a flurry of recent deals.

In the past month alone, Evolution Mining has agreed to pay $213 million for Carnaby Resources and a bidding war erupted for Hammer Metals between Larvotto Resources and Austral Resources Australia, with the latter coming out on top.

“There isn’t a lot to choose from on the ASX, and the crowd is thinning out through M&A,” Cairns said.

“The sector is hot, and for good reason.

“A measure of the degree to which the market’s been asleep is that some of these assets that have transacted have been relatively early stage … so I think the fact that corporates are pulling the trigger and picking up these earlier stage assets at this point in the cycle suggests that the market isn’t properly valuing these assets, whereas the corporates see greater value and are pulling the trigger earlier.”

Cairns confirmed that Stavely had previously had some corporate interest and had a data room set up.

“We have had approaches as well that are current, and we expect quite a bit more now that we’ve been able to provide a bit more granularity around the project physicals and the project economics.”