Magnetic Resources [ASX:MAU]

Metals & Mining

One of Australia’s highest-quality gold projects

We initiate coverage on Magnetic Resources with a current fair valuation of $2.77, representing a 115% expected upside from the current share price of $1.29. The company is a Western Australia-based gold explorer with deposits located mainly within the world-class Laverton goldfields region, including the high quality, large gold resource base Lady Julie Gold Project (LJGP), whose further exploration and preproduction development is Magnetic’s current focus. The company’s total JORC-compliant defined Mineral Resource Estimate (MRE) across all of its assets is 1.875 M ounces at a grade of 1.79 g/t, which includes LJGP’s MRE of 1.49 M ounces at 2.01 g/t. The LJGP showcases top-tier economic metrics for open pit gold opportunities in Australia, a position that keeps solidifying because its mineralisation is still currently open at depth, leading to strong recent upward revisions in resources and the real prospect for further resource increases.

Lady Julie Gold Project – Compelling Economic Potential & Growth Prospects

LJGP’s strong economic attractiveness stems from the impressive geology of the project, such as multiple, wide-stacked mineralised structures that extend from close to the surface to below 400m. LJGP’s main deposit, the LJN4, has rapidly increased in size from 0.11Moz in June 2022 to 1.49 Moz in July 2024. The more recent upgrades, including a 0.54 M oz resource upgrade from just March to July this year, have mostly arisen due to new prospective zones discovered at depth. The LJGP underwent a PFS in March, confirming its strong viability. A revised economic study is currently underway which will strengthen its merits because the March study was based off low gold price assumptions and lower resource estimates prior to the material July 2024 resource upgrade. The LJGP is attractively located, well-connected by infrastructure, and close to other gold mines, providing MAU with attractive toll treatment options and making it a strong candidate for a value-accretive M&A transaction.

Favourable Gold Outlook and Strategic Positioning for Magnetic Resources

We support the consensus view that gold will remain at elevated levels from now on. This is due to several macroeconomic and geopolitical factors. Additionally, an expected easing in interest rates will only provide further momentum to gold prices. The discovery of new high-quality gold deposits is increasingly rare. Hence, Magnetic is set to benefit from several factors.

Valuation range of A$2.18-$3.35 per share

We value MAU at A$2.18 per share in a base-case scenario and A$3.35 per share in a bull-case scenario. We undertake a multi-step sum-of-parts approach to value MAU, incorporating a high degree of conservativeness to each pivotal assumption, leading us to confidently formulate an attractive investment thesis for MAU.