While the Kalkaroo open pit copper-gold project has never been considered a Tier 1 or Tier 2 asset, based on the PFS dated 18 June 2019 it does have a NPV7.5% of $564 million and an Internal Rate of Return ('IRR') after tax of 21% (based on US$2.89/lb copper, US$1,200/oz gold, A$:US$0.75). So it is far from marginal.
Scarcity of Copper Assets
Based on Kalkaroo's Measured + Indicated resource it has 624,630 tonnes of copper at a grade of 0.55%, (based on page 10 of the Havilah 2019 Annual Report). Not to be confused with Kalkaroo's CuEq grade of 0.74% (based on US$2.89/lb copper and US$1,200/oz gold) and the Proved & Probable 474,000 tonnes of copper.
Kalkaroo 0.55% copper grade above is not even close to being one of the lowest grades compared to the following Hudbay January 2020 Investor Presentation (Slide 9), which shows the 'undeveloped copper projects of scale in Hudbay's preferred jurisdictions' (Canada, USA, Chile and Peru) on a Measured + Indicated Contained Copper basis:
Albeit, Hudbay says on that slide many of these projects of scale have material impediments to development (i.e. technical, permitting and community relations). Two that I researched were Rosemont and Resolution.
Hudbay's Rosemont copper-moly project in the USA has a copper grade of 0.37% generating 15.5% after-tax IRR at US$3.00/lb copper but during July 2019 the US District Court for Arizona issued a ruling that vacated the Final Record of Decision ('FROD') issued by the US Forest Service. Simply put, the judge ruled that the decision to issue the FROD was based on an incorrect interpretation of mining claims. As a result, Hudbay's ability to move ahead with building Rosemont is suspended for the time being.
Rio Tinto (55%) and BHP (45%) Resolution copper project has a copper grade of 2.63% and has the potential to become one of the largest and most competitive copper mines. Resolution will be the deepest block cave (~2 km deep) and one of the hottest underground mines in the world (76° to 82° Celsius). This will be achieved by extending an existing shaft, developed for the historic Magma mine, from its current depth of 1.5 km to 2.1 km depth. This will be a highly complex and challenging mining activity due to space restriction, potential excessive groundwater and poor ventilation.
Note: All the major copper producers are plagued by aging mines and falling grades, and they are having to spend US$ billions to keep them going.
Rio Tinto's producing Oyu Tolgol mine (Mongolia) had an average copper grade for CY2019 of only 0.45%.
Rio Tinto's producing Kennecott mine (Utah, USA) had an average copper grade for CY2019 of only 0.50%.
In the long-term, new supply will be needed in order to keep pace with demand projections as there are a limited number of meaningful “probable” projects in the pipeline, even with associated risks.
In my opinion, there are not that many undeveloped open pit copper projects with JORC Ore Reserves. For me, the Kalkaroo copper-gold project provides significant leverage to anticipated future improved copper prices based on the likely increased demand associated with the worldwide move to 'electrification of transport' and the 'decarbonisation of stationary power'.
Cheers
These are only my thoughts and it does not constitute investment advice. Before acting on any information you read and before making any financial or investment decisions, you should always consult your advisor(s) or other relevant professional experts.
HAV Price at posting:
13.0¢ Sentiment: Hold Disclosure: Held
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