Jaguar Deeps drilling underway: Results from ~500m down hole at...

Jaguar Deeps drilling underway: Results from ~500m down hole at Jaguar South and Onça Preta highlight continuing mineralisation and have given Centaurus Metals (CTM-ASX) the confidence to commence the Jaguar Deeps program down to 1,500m down hole (Figure 2 overleaf).

Latest step-out drilling has paved the way for the Deeps program. At Jaguar South, strong results from outside the November 2022 resource include:

21m at 2.26% Ni from 501m (incl. 6.0m at 4.48% Ni)19m at 2.13% Ni from 220m (incl. 11.0m at 3.31% Ni) and 22m at 1.92% Ni from 325m (9.0m at 3.43% Ni)

At Onça Preta, the deepest drilling to date, and outside the resource, has returned:

36.0m at 1.27% Ni from 483.6m (incl. 6.0m at 2.02% Ni)24.8m at 1.15% Ni from 609.1m (incl. 5.1m at 1.71% Ni)

Six diamond rigs are currently on site and are expected to reduce to three in September as the Deeps drilling progresses. Initial parent holes that are underway are designed to step out over 300m below the current deepest drill holes at Jaguar South and Onça Preta. Once the parent holes are completed, wedge holes will be drilled that can further test both down-dip or laterally along strike if required. The wedge hole directions will be driven and vectored by the DHEM surveys of the parent holes. A further resource update is planned for the MarQ'24. In the meantime, CTM is busily completing the DFS.

What the DFS could look like: CTM expects to deliver the Jaguar DFS in the DecQ'23. Since the Value-add Scoping Study (VSS) release in May 2021, the Jaguar resource has grown 67% in terms of contained nickel. Suffice it to say, we are dealing with a much larger orebody in a changing cost environment. We assume 75% of the resource converts to a mining inventory. We think CTM can optimise throughput up to 3Mtpa (from 2.7Mtpa), but in reality this is capped by the modular autoclave. Further up-scaling would require a second autoclave, providing a large capital hurdle. In our view, project economics are best enhanced through a mine life extension out to 20 years (from 13 years). We model 27% higher operating costs, US$5.00/lb AISC, and 36% higher pre-production capital (US$393m) compared to the VSS. Our annual production sits at 21ktpa of nickel sulphate, and we model pricing at a 3% premium to LME (i.e., 103% payabilities). Note that this will be negotiated during off-take discussions. See our expectations for the Jaguar DFS.

Off-take up for grabs: Recall that CTM recently acquired 100% of the off-take rights for all Jaguar nickel products from Vale in exchange for an increase in Vale’s Net Operating Royalty over the project. The royalty for nickel sulphate product will increase by 1.2% (to 1.75%), with the royalty for nickel concentrate and other products produced from Jaguar to increase by 1.25% (to 2%). This now provides CTM with unencumbered control and optionality over future marketing and sales of Jaguar’s nickel sulphate product. We also see this as positive news as it opens the doors to funding through equity investment or prepayments in addition to off-take, and increases the chances of corporate takeover opportunities in CTM, in our view.

Potential upcoming catalysts: Ongoing drill results, and news on off-take and potential funding partners could be forthcoming soon. The DFS is also due later this year. FID for the project is expected in the SepQ'24.

Valuation and recommendation: We have updated our model for recent changes to our commodity price assumptions. Our long-term nickel price is now US$9.25/lb (from US$9.00/lb). We have also updated our assumed equity dilution for project funding. Our price target remains $1.60. We have a SPECULATIVE BUY rating.