Chalice’s Julimar ‘one of the most significant greenfield discoveries in recent years’: Macquarie

Macquarie Research has initiated coverage on Chalice Gold Mines (ASX: CHN) with an outperform rating and $1.80 price target
11th September 2020
Resources Rising Stars

Macquarie Research has initiated coverage on Chalice Gold Mines (ASX: CHN) with an outperform rating and $1.80 price target, describing its Julimar nickel-PGE discovery in Western Australia as “one of the most significant greenfield discoveries in recent years”.

Macquarie says it believes that drilling has already defined a deposit at the Julimar project, located ~70km north-east of Perth, that could underpin a ~270kozpa PGE operation with ~20ktpa of nickel-copper-cobalt by- products.

“Our analysis of the drilling success to date at Julimar suggests CHN has already confirmed the existence of an economic deposit that could deliver production rates of ~270kozpa PGE’s and ~20ktpa of base metals,” the investment bank says in an initiation note on the company released this week.

“The ongoing drill-out of Julimar will effectively de-risk our development scenario for the project,” it says.

“Our mining inventory assumption, which we have derived from volumetric analysis of drilling to date, presents the most material risk to our $1.80 valuation for CHN.

“Ongoing drilling results present key potential catalysis for CHN and we note that all four high-grade zones at Julimar remain open along strike and at depth.”

The Julimar discovery was made in March 2020 with a maiden intersection of 19m at 2.59% Ni, 1.04% Cu, 8.34g/t Pd and 1.11g/t Pt from just 48m, Macquarie says.

Follow-up drilling has since delineated four key high-grade zones (G1-G4).

“We believe the G1 zone, which is close to surface, has already defined sufficient mineralisation to underpin an open pit development, while the deeper G4 zone, which is likely to be mined via underground, has the potential to be larger than the G1 zone,” the note continues.

Macquarie’s development scenario for Julimar, which underpins its $1.80 valuation for the stock, is based on a phased open pit and underground production profile which is expected to deliver a 7-year mine life with production rates of 220kozpa of palladium, 50kozpa of platinum, 10ktpa of nickel, 10ktpa of copper, 1ktpa of cobalt and ~10kozpa of gold.

“The strong by-product credits should see Julimar report AISC of negative ~US$200-300/oz of palladium produced,” it says.

“Given the early stage nature of the Julimar project, we have made several material assumptions in our development scenario.

“Variances from our base case are likely, the most significant of which is our mining inventory assumption.

“We believe there is both upside and downside risk to our mining inventory volume and grade assumptions as well as metallurgical recovery rates.

“Securing approvals to mine at Julimar also present a key development risk for the project.”

Macquarie ascribes a relatively modest $40 million valuation to Chalice’s other key asset, its Pyramid Hill gold project in the Bendigo region of Western Victoria.

A greenfields discovery has already been reported at this project, with the best intersection to date of 4m at 3.3g/t from 390m.

Macquarie notes that follow-up drilling will target wider potential zones of sulphide mineralisation similar to the high-grade Fosterville gold mine.

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