With share freefall over, ‘project enhancements’ now key to Chalice claw-back
Plus, Coda finds enhancements of its own at South Australian copper project and Evion finds fans amid forecasts of graphite shortfall.
6 HOURS AGO
Barry FitzGerald
Independent Journalist
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The freefall in the share price of Chalice Mining (ASX: CHN) following last week’s release of a scoping study into the development of its Gonneville nickel-copper-PGE project on Perth’s doorstep has come to an end.
Since the report was released after trade on August 29, Chalice had given up 38% of its pre-release market cap. What was a $1.96 billion company is now a $1.2 billion company.
It is not the stuff that would normally be expected from a scoping study into a project with world class credentials. Come this Thursday though, there was a recognition that the sell-off had been overdone, with Chalice recovering by 8% to $3.13.
So the freefall is over. But it is also clear that it is now up to Chalice to deliver on the project enhancements – and its search for a strategic partner at the project – to recapture more of its lost ground.
Chalice CEO Alex Dorsch said during the week that he was somewhat perplexed by the savage sell-off.
“We were not anticipating that sort of reaction to any degree. We obviously think that our study is fundamentally robust and of high quality. And we stand by the assumptions that we made,” Dorsch said.
He said the most common criticism of the study – the use of $US2,000/oz palladium prices without reference to much lower spot prices – was a bit surprising given Gonneville won’t come online until 2029 under current planning.
“So quite frankly, spot prices or near-term prices are largely irrelevant. We are talking about a mine that comes online in 2029 and continues for something like 20 years and probably goes well beyond that,” he said.
Perhaps his bigger point though was that the study was only a starting point.
“The study has done a good job of looking at some options for us but it is not a comprehensive suite by any means. So there is lots to do.” Dorsch said.
“The short-term-focussed market struggles to understand that maturing and being development ready on a project this size does take a lot of work and a lot of narrowing of estimate accuracy over time.’’
Project enhancements are the order of the day. On that score, watch out for work on bringing in higher grade underground ore into the mining plan to improve the overall economics and more work on the process flowsheet to improve nickel/cobalt recoveries.
The strategic partnering process, which only kicked off in April, could also change perceptions, particularly if one of the major mining groups steps up to become a partner in what remains a rare multi-decade opportunity across the full suite of metals critical for decarbonisation.
All that came through in Macquarie’s research note on the scoping study on Thursday, or a week after the study landed. It came with a $3.50 a share price target (down 65%) and was titled: “Scoping study just a snapshot in time”.
“We view the 42% fall in the share price as an overreaction. The study excluded upside from underground that we believe would have improved Gonneville’s economics through higher grades and higher recoveries,” Macquarie said.
Another big end of town broker, UBS, came out earlier on Wednesday with a $3 price target (down 50%) on the stock. It was titled: “As the scoping study disappoints, the PFS might look a little different”.
UBS reckons a smaller project starting out with a processing rate of 3.75mpta and increasing to 7.5mtpa (the study looked at 15mtpa and 30mtpa) might be the best way forward.
“It all leads to front ending more high margin production while retaining optionality for a larger operation later,” UBS said.
Again, the insights from the analysts are – and were – in the mix of the enhancement options Chalice is working through to make sure one of the best discoveries of recent times also becomes one of the best mine developments. Source: livewire markets
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