Big boys’ exploration success in WA’s Paterson fuels drilling frenzy among army of juniors
The field season in this remote province is in full flight, offering investors leverage in abundance. Plus, former analyst helps kaolin IPO and WA iron ore junior set for first sales in new year.
30th October 2020
There has been more gold and copper found in WA’s remote Paterson province in recent times than anywhere else in the country.
Rio Tinto estimated the shallow resource at its still growing Winu find at 4.4 million ounces of gold and 1.8Mt of copper back in July, and it has also reported high-grade gold hits at the nearby Ngapakarra prospect.
The idea is to get Winu into production in 2023, subject to government and traditional owner approvals, with the latter trickier than it was before Rio was sent to Coventry for its destruction of rock shelters in Juukan Gorge in the Pilbara.
Also in the Paterson, the Newcrest/Greatland joint venture has been pumping out impressive high-grade gold-copper exploration results at the Havieron discovery.
Results announced this week included 116.2m grading 2.6g/t gold and 0.65% copper from 607m and 120.7m grading 9.3g/t gold and 0.18% copper from 1,349m.
It is deep all right but such is Newcrest’s confidence in Havieron – and its ability to become a supplementary feed source for the hungry treatment plant at its Telfer operation some 45km to the west – the company has flagged an initial inferred resource will be announced this quarter.
Newcrest is also progressing the approvals process to start an exploration decline at Havieron by the end of this (calendar) year, or early in 2021.
Take what is known to have been found at Winu and the upside there, along with what is yet to be announced by the Newcrest/Greatland joint venture at Havieron, and there is little wonder that the Paterson has become an exploration hotspot.
As impressive as Winu looks, it is debatable if it can move the needle much for Rio given the scale of its market cap.
Confirmation of a big resource at Havieron could be market moving for Newcrest though as it has its own in-ground value, as well as value implications for Telfer.
That’s all very interesting but today’s focus is othe bunch of ASX-listed juniors active in the Paterson where the field season is in full flight. They are involved in the hunt for the next Winu or Havieron, often with mining majors like Rio, Newcrest and others footing the bill.
Leverage to Winu and Havieron-type success would obviously be extreme for the juniors, even where their joint ventures with the majors have reduced their exposure to something less than 100%.
The London-listed Greatland demonstrates the point.
A junior before it got the ball rolling at Havieron with some high-grade hits that enticed Newcrest to enter the joint venture under which it is earning a 70% stake, Greatland is now a $A1.65 billion company.
As mentioned, the Paterson exploration field season is in full flight, with plenty of action among the juniors.
It is only right to give a mention to Antipa (AZY) first up in recognition of its long-term focus on the province, and the depth of its exposure through joint ventures and wholly-owned properties.
Antipa is trading at 4.6c for a market cap of $116m. It is off from recent highs due to the broader market sell-off in these risk-adverse times.
But none of that will matter if something interesting comes from current drilling programs.
Antipa is drilling at its wholly-owned Minyari Dome project, 75km from Winu and 35km from Telfer. The aim is to increase the size and grade of the Minyari and WACA deposits (732,000oz of gold and 26,000t of copper combined).
Then there is the start of a drilling program at the Wilki project which Newcrest is farming into. It contains numerous targets, including Havieron-style types, all within 15-45km of Telfer.
Another farm-in project involving IGO has got going with the drill bit some 8km from Winu and 22km from Telfer, and the Citadel joint venture with Rio is reviewing a bunch of interesting results from the completed 2020 drilling program.
Citadel, about 45km east of Winu, is already home to the two deposits – Calibre (1.3Moz of gold and 70,000t of copper) and Magnum 340,000oz of gold and 57,800t of copper).
Excluding its 100% ground, Antipa’s farm-in agreements with Rio, Newcrest and IGO cover potential free-carried expenditure of $150m, with a minimum spend of $20m over the next two years.
It is about as much leveraged exposure to the hunt for the next big find in the Paterson as could be hoped for, making Antipa one to watch in coming weeks and months.
Other juniors to watch include Encounter (ENR), Carawine (CWX) and AIC/Rumble, all of which have stories to tell beyond the Paterson but which are included today on the basis of their exposure to current drilling programs in the province.
Encounter, trading at 20c for a $62m market cap, is involved in drilling programs in the Paterson at its Yeneena copper-cobalt project where IGO is earning an interest, and at its 100-% owned Lamil copper-gold project near Telfer.
Carawine, trading at 32.5c for a $31m market cap, is busy in WA’s Fraser Range and eastern Victoria. But it also in joint ventures with Rio and Fortescue in the Paterson, and to its own account.
Drilling was meant to be underway in the Rio joint venture at the Baton group of targets but has been pushed back to the second quarter next year “due to the lack of availability of a suitable drilling rig and traditional owner monitors”.
Lastly, another one to watch is the AIC (A1M) and Rumble (RTR) joint venture, under which AIC is earning an interest. The joint venture is working its way through an initial drilling program at their Lamil project. Like Encounter and Carawine, the companies are also active outside of the Paterson.
Former mining analyst Cathy Moises had a reputation for making good calls over her 30-year career.
And she had a reputation for calling things as she saw them. Unlike many of her peers, if she didn’t like a stock for some good reason, she would say do.
Moises is now in the world of NEDs, her latest position being with WA Kaolin (WAK) which has just pulled in $22m from an over-subscribed IPO.
It has to be thought Moises’ decision to get on board was a factor in the success of the IPO which had Canaccord as lead manager and JP Equities as co-manager.
WAK is already a small-scale producer for the ceramics and fibreglass end of the kaolin market from its world-scale Wickepin deposit, 220km south-east of Perth, and acquired from Rio Tinto back in 1999.
Funds from the placement are earmarked for a quickfire $18m expansion to 200,000tpa, with a push not long after to 400,000tpa for capex of $14m, which would be funded from stage one cashflows.
So what does Moises like about WAK and Wickepin project?
“The concept is already proven. They have had a trial plant for some time, and they are in commercial production, albeit at small-scale,” Moises said.
“So the build at Wickepin is just a modular expansion of what is already there, so the execution risk is a lot lower than most, and the capital requirement is tiny.
“And the return on investment has the potential to be very large (a completed DFS could not be included in the prospectus because of the ban on long-term forecasts in such documents).”
Moises continued: “It has a long mine life at 31 years and that is based purely on reserves. And there is a lot in resources behind that, so the potential to further expand over time is very significant”.
The clincher though has got to be potential for a profit margin of 30%, and the intention for a payout ratio of 66%, if you don’t mind. A listing date for WAK can’t be far off now and when its credentials are compared with other kaolin players on the ASX, its debut will be one to watch.
Interesting to note that iron ore has defied the sell-off in commodities.
It has actually edged up 1.5% to $US116.87t while the Aussie dollar has sunk to a revenue boosting 70.6c, making for $A165/t iron ore.
That’s good news for the juniors planning to become iron ore producers. To that end, Fenix (FEX) is on track to be generating its first revenue from its low capex project early in the new year.
Financial planning for the dig-truck-ship project (through Geraldton in WA) was based on iron ore price assumptions much lower than is currently the case.
It has to be said most expect a retreat in prices at some point. But for as long as prices remain at elevated levels, so does Fenix’s earnings capacity. Still, the stock has drifted back to 12.5c as a result of the general market sell-off.
Euroz Hartleys last week derived a NPV for the stock of 25c, based on the historic average iron ore price for the last 12 years of $US100/t. It set a share price target of 20c.
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