Austral Resources - Copper Exposure

Afternoon everyone I'd love to consider some reasons why AR1 might be one to keep on your watchlist going forward.

Quick Summary:
Shares on Issue: 445,375,000 (+54mill options at various strike prices)
Market Cap: $78mill
Cash on Hand: $13mill
Debt: $28mill
Additional USD$15mill prepayment facility established in Feb 2022.
Top 20: 81% (60% management held)

Why it may pose some upside:
Mt Kelly area

It is currently Australia’s only commercially operating SX-EW plant, has beenproducing LME A-Grade copper cathode since 2007 and after total production of in excessof 125kt between that time and now, has gained a strong reputation with leading copperofftakers for producing some of the world’s highest quality copper cathode. That qualityrecognition is reflected in sales in that AR1 is not only able to immediately sell all of thecathode it can produce, but also realises a premium on top of the LME market price itreceives for its cathode.

The plant currently producing circa 7tpd of copper cathode from remnant heap leach irrigationon ore production from July 2021 will in Q1 CY 2022 see new oxide ore received on its heapleach pads sourced from the fully permitted, shovel ready, Anthill open pit. Anthil on line willsee production of copper cathode strongly increase to a planned 30tpd by the end of 1H 2022,which in turn will significantly boost revenue.

AR1 now holds a large (>1,900km2) tenement package covering some of the mostprospective parts of the Mt Isa-Cloncurry copper district, a copper belt not only justifiablyrecognised as being of world class status but also demonstrating current renewed globalinterest highlighted by Evolution Mining’s (ASX EVN Mkt Cap $7.4B) November 2021$1Billion acquisition of Glencore’s 50% stake of the Ernest Henry Copper Operations andthe highly successful July 2021 ASX listing of 29Metals Limited (ASX: 29M, Mkt Cap $1.3B)with the Capricorn Copper operations, (located only 20km NE of Mt Kelly), central to thatcompany’s copper production base.

On 2nd July 2021 high profile 29Metals Limited (ASX: 29M Mkt Cap $1.3B) was successfullylisted on the ASX. The Owen Hegarty chaired company which has seen substantial share priceappreciation since listing, has central to its 3 asset portfolio, the operating Capricorn CopperMine which is located only 20km to the NE of AR1’s Mt Kelly operations. Capricorn which has1.1Mt contained Cu resources including 250kt contained Cu reserves and resources is one ofAustralia’s larger copper producing assets currently.

Anthill.

With a JORC Ore Reserve Estimate of 5.06Mt @ 0.94% Cu and a Mineral Resource Estimate of 12x more tonnage at 0.7% Cu it poses plenty of exploration upside given the Project is only on 4 years of production of cathodes. This is a massive copper resource estimate which roughly 10x more copper than taken into account in previous studies so the inventory is there to be expanded on through additional discovery too. I'd expect that the mine life of Anthill will be extended into the region of 6-10 years based on the resource. Even more remarkableis that fact that the majority of these arecopper sulphide resources that remain openin several directions. This demonstrateslong life asset growth potential and provides an excellent robust base to build an even larger reserve and resource inventory. I see that theCompany is not short of targetswith seven of 31 oxide targetscurrently slated for drilling in1H2022. Importantly for investors, withadequate funding and personnelavailable we anticipate drillingwill be continuous from January2022 which should provide for asteady stream of news flow intothe market.

NPV of $134mill at a Cu price of US$8,180/t with over $160mill of free cashflow (ie 4 years of $40mill p.a.). Given the current market conditions, the price of copper is at US$10,380 which gives an NPV over AUD$220mill. In accordance with the impressive copper market, the tema has a FX hedge and copper hedging will be implemented for 30% of Anthill production.

The crushing circuit processed its first Anthill mine rock in late March with the first ore processing by the end of April 2022.

Fully funded to full production and with capex covered, the Anthill has already begun production and 5,000t ore were delivered in March ramping up 11 fold to 55,000t's in April and up to 155,000t's of ore in May (ie two months away!). In a recent Presentation with Jauncey, he spoke above fully profitable operations ongoing from August/September given the ramp up of production and utilization of the plant. Going forward, AR1 looks to be heading in the direction of $15-18mill profit per month from September forward, at a inflated copper price, will be 20% margin and over $50mill p.a. in profits and a 8-10x multiple would give a $0.80 share price once steady state production is in flow.

Anthill will provide oxide ore feed to the Mt Kelly operations for the next 4-6 years immediately increasing cathode production in 2022 to at least 10ktpa. We note Mt Kelly’s nameplate cathode production capacity is 30ktpa, leaving plenty of room for anticipated, additional substantial production growth.

A big IF for many investors, as I've been skeptical about too, is the oxide mineralization in the copper at Anthill. The oxide copper mineralization at Anthill contains relatively low calcium and magnesium levels and test work has shown that it is suitable for acid leach recovery. Once the company can kick goals and show the market that the process for Anthill copper cathode is sufficiently profitable a re-rate will likely happen. The management team are experienced in the SX-EW method for oxide ores, but I'm hoping there might be even more blue sky if they adopt some of the US-based heap leaching process (or at least give it a crack in the lab).

Purely on a copper based metric, the share price has not followed the increase in copper as many of the copper plays have.

Further to the price of copper, its asset base itself should be worth multiples of the current market cap. Most recent estimations have concluded that if the operation was needed to be replaced, the replacement cost would be in the region of $160 million. We reiterate that that figure is twice the Company’s current market capitalisation, highlighting AR1’s undervaluation.

Outlook of Copper:
“Even if the price of copper were to double overnight it would still be years before we had significant incremental production coming on,” Goldman Sachs analyst said. “The market is going to need it far faster than companies like ours can produce it.”

Asked about the impact of China’s recent Covid lockdowns, Adkerson said copper demand from the Asian nation “has remained remarkably strong,” with the company not seeing any issues selling its material to smelters there.

What is that $300mill debt??!!?!

I saw a couple posts about a random $300mill debt that someone had pulled from the balance sheet. This is a pre-Austral Resources listed debt and was written off in agreement to issue 235,100,000 shares to Dan Jauncey when the purchase of the company, including processing plant and various mine sites, happened.

As such, when the company came into ownership of the production plant the original Borrowings figure is a Loan from the parent entity (Dan Janucey) of the prior owners which is written off to the issuance of capital. So, with respect to the debt figure - the debt was withdrawn given the issuance of 235,100,000 of shares to Yellow Gear Pty Ltd in AR1 which is now ownership of almost 53% of the company. This company is owned by Dan Jauncey (Founder and CEO) so gives me confidence that he wants to bring fruit of his labour into the projects.

Management, one of the biggest key instigators in a well-run resources minnow.