Spartan Resources LimitedPrecious Metals - Producer | Rating and Target Price ChangesFate loves the fearless SPR-ASX | Price A$0.37 | Market Cap A$320.3MSPECULATIVE BUY from UNDER REVIEWPRICE TARGET A$0.60 previously UR Spartan Resources... Since suspending operations in Nov-22, Spartan Resources (previously Gascoyne Resources) has undertaken a successful A$50m recapitalisation (Feb-23), and grown its high-grade Never Never deposit (discovered mid-2022) by 573% to 721koz at 5.9g/t. As a result, the outlook for the company has markedly changed, pivoting from an operation that historically struggled with low-grade ore feed (<1.0g/t) to one aiming at restarting production with a new mine plan based around one of the highest-grade Australian gold discoveries in recent years. SPR is well funded with A$34m in cash (no debt), which should see it through multiple Resource and Reserve updates, potential additional discoveries and be in a position by mid-2024 to outline a robust +5 year mine plan delivering 130-150kozpa. Potential Never Never look-alikes confirmed, extensive drill program underway.SPR has commenced a 25,000m drill program consisting of four rigs (3 diamond, 1 RC) aimed at growing the scale and confidence the existing high-grade Never Never resource (already 76% M&I), as well as, testing look-alike targets including: Four Pillars and West Winds beneath the Gilbeys open pit, Ink in the hanging wall of Never Never and Arc ~1km north of Never Never. Interestingly, SPR's new interpretation of the Four Pillars (historic hits include 15m at 12g/t and 8m at 16g/t) and West Winds (historic hits 60m at 2.4g/t and 32m at 4.1g/t) targets, are cross-cut structures similar to Never Never, where previously they were incorporated in the lower grade Gilbeys pit Resource model. Areas in the Gilbeys pit, previously mined directly above both Four Pillars and West Winds, were coincident with +30% positive grade reconciliation and are supportive of the company's interpretation in our view. With drilling underway, positive results from these targets could be a meaningful catalyst in the short term and support exponential high-grade Resource growth if analogous to Never Never. Central to SPR's exploration strategy is demonstrating the potential for multiple high-grade underground scenarios within a 2km radius of the 2.5Mtpa Dalgaranga plant. Optimisation work underway to assess various throughput options (1.6-2.5Mtpa).SPR has a number of work streams underway, investigating various throughput, mining rate and associated underground/open pit blending strategies. Optimisation studies on the processing flowsheet targeting further improvements in overall metallurgical recoveries (more centered on open pit material) are also underway. Ultimately, this work will evolve in line with the current exploration program, and if the company can define additional underground opportunities, these will be incorporated ahead of the targeted decision to restart in mid-2024. Assumptions underpinning our valuation. We have built a base case production scenario to underpin our valuation, utilising the Never Never open pit/underground and Gilbeys open pit ore to support a 1.7mtpa processing rate producing ~136kozpa at an AISC A$1616/oz. We assume first production in the 2H'FY25, with the Never Never underground accounting for 75% of the ounces produced over a 7-year mine life. We assume total capital to restart the project of A$120m, which incorporates a mill upgrade (addition of secondary crusher), pre-production underground development, paste plant and cutback on the Gilbeys pit. We acknowledge our base case assumptions will likely evolve as the company moves towards FID, but are comfortable with the level of conservatism built in, particularly if additional underground mines are defined, which could point to much higher production rates than we model. Potential catalysts: 1) Drill results from the ongoing 25,000m program 2) DecQ'23: Resource/Reserve update for Dalgaranga (incl. Never Never Resource update) 3) MarQ'24 maiden Never Never Reserve 4) Mid 2024: restart decision. Valuation and recommendation. We resume coverage of SPR with a SPEC BUY rating and A$0.60/sh price target on a fully diluted basis.
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