Spartan’s imminent resource increase means Ramelius would have to cough up ‘well north of $1’

Ramelius’ (ASX:RMS) Mak Zeptner has landed lots of small fish acquisitions over time to build the company into the $2.24 billion high-performing gold producer it is today.

But he has never landed a fish as big as Spartan (ASX:SPR).

It is why after recently assembling a 17.94% stake in Spartan at an average of 87c a share, Zeptner has declared that there is no current intention to acquire control or make a takeover bid.

No wonder, Spartan’s market cap now stands at $1.14 billion (98cps).

And while Ramelius is cashed up ($446m) and has an undrawn and an upsized debt facility ($175m), its firepower falls well short of the $935m needed to acquire the shares it does not already own without even taking into account the premium that would be required.

So there is no need to spook the market in Ramelius by making a big-bang bid, not just yet anyway.

Suggestions this week that Ramelius has upped the stake to the 19.9% takeover threshold are in keeping with the no current takeover bid declaration from Ramelius. But no one expects that to be the end of the story.

Ramelius is not waiting around for a dividend flow from Spartan. That is more than a couple of years away. But it is no doubt interested in integrating Spartan’s currently-shuttered Dalgaranga operation into its Mt Magnet operation, which has become long on reserves/resources.

Spartan however is not only a big fish for Ramelius’ ambitions. It is also a slippery one, and one that Ramelius or other regional suitors would have had a better chance of landing had they acted earlier.

That’s because Spartan’s current market cap is up massively from $70 million or 10cps early last year when its then newly arrived boss Simon Lawson recapitalised the company in the burning belief there was untapped exploration upside at Dalgaranga.

The recapitalisation followed on from Lawson taking the tough decision to place the newish Dalgaranga treatment plant on care & maintenance in November 2022 because it was tough to make a buck from the processing of less than 1g/t dirt from the Gilbey’s open-cut.

Lawson has had good reason to get excited about the exploration upside thanks to the earlier 2022 Never Never high-grade discovery sitting all of 600m from the 2.5mtpa Dalgaranga treatment plant.

Never Never has since grown to a 952,000oz resource grading 5.74g/t and given recent exploration success, it is likely the exploration target set for the game-changing discovery of 1.6-1.9Moz is well in hand.

More recently, the nearby Pepper discovery has spiced things up further, with Spartan planning to include to a maiden resource for the find when it updates its resource estimate for the adjacent Never Never in coming weeks.

Absent a meltdown in the gold price, which would close off the bid option for Ramelius anyway, the value story at Spartan is set to increase with the pending resource update. So any bid is going to have to be well north of $1 a share, well north.

In the end, it could be that Ramelius gets to book a share trading profit from its Spartan foray, leaving Lawson the task of returning Dalgaranga to a 150,000-200,000oz annual producer with fat margins from the end of next year, all from the existing treatment plant.

RARE EARTHS:

Has a turning point arrived for beaten up rare earths pricing?

Despite bringing the stuff required for permanent magnets and other technologies critical to global decarbonisation, and military applications to boot, prices have slumped in recent times from $US150/kg to $US45/kg.

It is a market controlled by the Chinese with its biggest producer China Northern Rare Earths accounting for as much as 60% of the global market. But even it can’t make money at these prices.

It recently posted a loss for the June half. If it can’t make money at current pricing, then it has to be assumed that Beijing will soon be turning its attention to managing prices higher through its export quota system.

Apart from the losses being incurred, Beijing could move on a supply response – i.e. reduce export quotas – on the argument that it is being hit left right and centre by tariffs in the US and Europe so here, cop that.

None of the industry followers are expecting a quick rebound in prices. But it is now assumed that the bottom has been reached and prices will grind higher from here on, with Beijing keeping an eye on price upside to ensure the western world’s build out of its own rare earths supply chain is not overly incentivised.

METEORIC:

So if China can’t make money from rare earths at these prices who can? No one can, unless a rare earths operation slated for first production in 2027 is included in the discussion – Meteoric’s (ASX:MEI) Caldeira project in Minas Gerais, Brazil.

Based on its scoping study released on Monday, an initial $US297m development (excluding a 35% contingency) at a mining rate of 5mtpa producing  3,000tpa of contained NdPr over 20 years would generate an IRR of 14% at near spot pricing, or 38% if the $US111/kg life of mine pricing assessment by industry consultant Adamus is used.

Its cash generating ability gets down to its ionic clay status which delivers the sort of low capex, low opex the best of the Chinese operations enjoy. Given the high-grade resource base at Caldeira is actually a big multiple of that considered in the scoping study, the project is clearly on the way to earning its Tier 1 stripes.

Tier 1 operations survive at the very bottom of commodity cycles and thrive in higher pricing environments. It is a handy trait to have in the ever-cyclical mining game, and an appealing one as well as governments around the world are looking to break China’s grip on rare earths.

Having said that, the market in Meteoric acted strangely in its first pass assessment of the scoping study. What was an already beaten-up stock last Friday at 18c a share was sent lower to 13c in response to the scoping study. In Thursday’s market it was 13.5c.

The capex estimate was certainly higher than what the market had been pencilling in. But that was about it in terms of any negatives.

That came through in analyst notes on the scoping study. Bell Potter cut is share price target from 50cps to 40cps while Barrenjoey cut from 50cps to 47cps. Both are still multiples of the current share price.

Barrenjoey’s shorthand assessment of the scoping study was that it highlighted a Tier 1 development project in rare earths.

“The scoping study released today confirmed that operating costs can be in the lower portion of the cost curve due to very little stripping free dig mining, and little requirement for crushing/energy in processing,” Barrenjoey penned.

It said that while capex (including the contingency) was 34% higher than it and the market had been estimating, the opex is materially lower at $US21/kg life of mine.

“The project is expected to be cash flow positive at the current depressed spot price of $US45/kg and make an IRR of 14%. We think this highlights the high calibre of the project relative to industry peers,” Barrenjoey said.