Sandfire’s Cash Makes It A Potential King-Maker Among Its Junior Copper Neighbours In Western Australia By Our Man in Oz
Strong production of copper and gold from the DeGrussa mine in Western Australia is the backbone of Sandfire Resources, but it’s the next growth leg which interests investors now as the company prepares to move out in two directions: drilling deeper and casting a net around to test deal-making potential with near neighbours sitting on undeveloped resources.
Key to everything in Sandfire’s plans is its new ore concentrator located adjacent to the DeGrussa mine.
Not only will the processing plant need a flow of raw material that goes beyond currently-known mine life, but it is also acting as a honey pot for other companies which have ore, but lack the cash to build a processing plant.
In that regard, Sandfire is the potential king-maker in a region which has long been recognised for its rich pods of copper and gold ore, but never developed in a unified fashion which would maximise profits.
Unlike its neighbours, such as Ventnor with its plans to re-develop the historic Thaduna and Green Dragon copper projects, located about 40 kilometres east of DeGrussa, and Horseshoe Metals which is exploring another historic copper deposit, Horseshoe Lights, located 75 kilometres to the west, Sandfire has another asset they covet - cash.
What makes the current situation particularly interesting is that while Sandfire is steaming along successfully in the tricky waters of a copper price which refuses to rise far above US$3.50 a pound, and is currently in the doldrums at US$3.21 per pound, both Ventnor and Horseshoe are suspended from trading on the Australian stock exchange.
Horseshoe shares were suspended on June 14th at the request of the company “pending the release of an announcement”. Ventnor shares have been suspended since early April as it struggles to finalise a modest loan facility totalling A$2.74 million.
No-one is yet saying that Sandfire is playing a role in the future of its neighbours, or that it has its eye on other potential partners in the region, including perhaps Talisman Mining and Sipa Resources.
But, with small companies seeing most of their avenues to capital effectively frozen there is an incentive for them to talk to the local leader, Sandfire, with its pile of cash, its operating process plant, and its relatively short mine life expectancy.
At the moment the mine life at DeGrussa rings in at around seven years, or perhaps a bit more after a recent resource upgrade.
That upgrade added 64,000 tonnes of copper and 93,000 ounces of gold which, given the current production schedule represents about an extra year of production, leaving open the question open as to what will Sandfire do to extend the life of its processing centre, and possibly grow the business to a higher level.
At DeGrussa there is already has an extensive exploration program underway to pinpoint additional targets along what it calls its “corridor of riches”. Underground, there is a new program starting which will look for depth extensions to the four primary orebodies discovered so far.
Sandfire chief executive, Karl Simich, said he was pleased with the resource upgrade which was achieved largely through the drilling of dive deep drill holes which extended the Conductor 4 deposit, and thickened the Conductor 5 deposit.
The net result was the extra copper and gold and a new ore resource figure of 13.8 million tonnes grading 4.8% copper and 1.7 grams of gold a tonne, compared with a previous estimate of 13.5 million tonnes at similar grades, a result which effectively means depleted (mined) ore has been replaced.
“We have been able to more than replace production depletion to December last year, adding 64,000 tonnes of contained copper to our high-grade mineral resource inventory through our work at Conductor 4 and Conductor 5 and in-mine work”, said Karl.
“We believe this will add around one year’s copper and gold metal to the mine plan.”
Perhaps of greater importance is the change in the near-mine exploration work, with Sandfire getting ready for deep drilling from recently developed underground workings.
“Having demonstrated what can be achieved with drilling from surface, we will now establish underground drill platforms from later this year to enable us to target further prospective areas”, Karl said.
A priority of this next phase of drilling will be isolated high-grade copper and gold intercepts encountered during the early stage of work around DeGrussa which have not been followed up so far, because of the depth and because the company was focussed on getting into production as quickly as possible.
Growing at depth is one plan to ensure that the processing plant is kept operating at design capacity.
Adding ore from other projects, assuming it is compatible with the DeGrussa plant, is another possibility, and while no detail has been released by any of the potential players in a game of project consolidation there is a compelling case developing for deals to unleash value.
Overcoming egos could be the biggest challenge. Ventnor executives, for starters, have said in the past that they expect Sandfire “to come crawling” for ore from Thaduna, especially as DeGrussa material runs down.
But, changing market conditions could have the shoe on the other foot now, with Ventnor seeming to be more in need of a deal with Sandfire than the other way around, especially with its shares suspended for more than two months and shareholders undoubtedly anxious for something to happen.
As for Horseshoe, it went into a trading halt on Tuesday, followed by a request on Friday for trading to be suspended pending the release of an announcement.
Because the three companies are at different stages of development and have substantially different profiles its best to look at them through the common factor of money, because on that test Sandfire is unquestionably in the driver’s seat for any deals.
Its current stock market value is A$923 million, many times the size of Ventnor which was valued A$26 million before its April suspension, and far bigger than Horseshoe which was worth A$5.8 million when it went into its Tuesday trading halt.
If there is to be a deal which delivers more ore to the DeGrussa processing plant it will be Sandfire which writes the rules.
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