With a $2bn NPV and over $6.5bn in life time cash flow, Caravel is emerging as Australian copper giant

Caravel (ASX:CVV), in concert with study experts Lycopodium and Orway Mineral Consultants, has set the stage perfectly for its H1 2024 definitive feasibility study, with a string of upgrades that will boost scale and revenue, reduce payback time and cut all-in sustaining costs (AISC).

It looms as one of the largest copper projects ever delivered in Australia, with a growing resource containing 2.84Mt of copper metal.

For context, the project will be comparable in annual copper output to mines such as BHP takeover target OZ Minerals’ Prominent Hill and Carrapateena, and Sandfire Resources’ recently shut DeGrussa, with the update increasing steady state copper output from 60,000tpa to 65,000tpa over a 26-year project life.

The addition of a molybdenum recovery circuit will see Caravel produce 900t of the rare steel-hardening metal a year.

Molybdenum hit 10-year highs in excess of $US30/lb earlier this year on the back of supply shortages in China and Chile.

It is used to make things such as drill rods, engine parts, armour plating, heating and saw blades, along with tech applications, petroleum catalysts and fertilisers.

The only production in Australia currently is as a by-product of Newcrest’s Cadia-Ridgway gold mine.

Copper production will be an even more impressive 71,000tpa over the Caravel project’s first five years, up from 65,000tpa, with a 10 per cent increase in processing capacity from 27Mtpa to 30Mtpa.

That will come with only a slight increase in capital expenditure from $1.584 billion to $1.676 billion.

But C1 cash costs will drop from $US1.54/lb copper to $US1.23/lb and AISC is expected to fall from $US2.37/lb to $US2.07/lb, delivering a significant reduction in the project’s payback time from 5.6 to 4.9 years.

With an increase in capex of under $100 million, Caravel will deliver a $1 billion lift in pre-tax net cash flow from $5.6 billion to $6.6 billion (from $19 billion in revenue), $500 million rise in pre-tax NPV from $1.5 to $2 billion and rise in pre-tax IRR from 18 per cent to 21 per cent.

At current copper prices in excess of $US4/lb, that would generate a strong margin.

But demand for copper is expected to boom from the back half of this decade, with market analysts expecting persistent deficits as energy transition technologies such as EVs, which use four times the copper of conventional motor vehicles, explode and enter the mainstream.

The inclusion of the molybdenum circuit will provide exposure to forecast supply deficits and by-product credits to bring down operating costs, while deferring a coarse particle flotation circuit for future expansions will provide options down the line.

Caravel has used prices of $US4/lb copper and $US20/lb molybdenum for its PFS update, which could well be conservative in the context of expected shortages for both key materials.

“Our decision to commission a wide-ranging independent metallurgical review of the Caravel Project flowsheet by a leading engineering group in Lycopodium, supported by a group of highly regarded consultants, reflects our commitment to exhaustively analyse all aspects of the project and to strive to ‘build it right’ from the beginning,” CVV managing director Don Hyma said.

“The results of this review and update have exceeded our expectations. The increase in copper production stems from relatively minor changes and enhancements to the project flowsheet, in combination with the inclusion of the previously flagged Molybdenum Recovery Circuit.

“Collectively, these changes result in a significant increase in project cashflow, NPV and financial returns for a relatively modest increase in capital expenditure.

“Importantly, we have used a relatively modest assumed price of $US4/lb for copper and $US20/lb for molybdenum – with significant scope for upside on these prices.”

Following the success of the study update, Perth-based Lycopodium has been selected as the lead engineer for Caravel’s definitive feasibility study, the last step required before financing and a final investment decision can take place.

Along with approvals from the state and federal governments, CVV is targeting a potential two year construction time frame with first production in the second half of 2026.

Caravel will waste little time getting its DFS moving.

“The outcomes of this review will now be ‘frozen’ into the detailed engineering phase, and we are delighted to announce the appointment of Lycopodium as the Lead Engineer for the Definitive Feasibility Study, which will get under way in earnest in the second half of this year,” Hyma said.