Significant re-rate in the near term

Are there any copper bargains on the ASX?

In that context Austral Resources looms as a standout copper bargain.

Listed in 2021, Austral (ASX:AR1) has a market cap of just $108.1 million according to Commsec.

Austral when it comes to standalone ASX-listed copper producers.

Austral is the cheapest of the lot. Yet, it is the most advanced down the copper market value chain.

Other producers deliver a concentrate which is then sold on to smelters. Austral goes a step further, selling a 99.9% pure copper cathode that gives it far higher payabilities and exposure to changes in the price of copper metal.

Morningstar has an undervalued rating on AR1, currently trading at 21c, putting a fair value on its shares of 46c.

Massive resource base

It’s not the only company that rates AR1 highly amid what is a bullish copper outlook – Peloton Capital resource analyst Ian Spence has placed a 50c price target on the stock, 2 ½ times its current going rate.

Its Mt Kelly Heap Leach plant near Mt Isa is the only one operated by an ASX company using the solvent extraction electrowinning production method, producing 130,000t of LME A-grade copper cathode since 2007.

At rates of 1000t per month – Austral hit 33.5t per day within operating cost budget throughout February despite heavy rainfall in north Queensland – the company is using just a third of Mt Kelly’s capacity, providing ample room for growth.

“AR1 is a rare, substantially de-risked opportunity to invest in an established domestic copper producer with realistic strong aspirations of attaining substantial share price growth through increased revenue from planned scheduled increased production as well as leverage upside from a planned fully funded aggressive exploration and resource development drive,” Spence said in his February 28 note.

“Whilst there are plenty of junior copper companies currently listed on the ASX, only a tiny few are currently able to take advantage and leverage off current and forecasted high copper prices by producing physical metal.”

Anthill Mine

Ore is currently coming from the Anthill open cut mine, which contains a reserve of 5.06Mt at 0.94% Cu for 47,500t of contained copper metal.

This high grade oxide material is the tip of the iceberg, with Austral boasting a broader resource base of 60Mt at 0.7% copper, an inventory of predominantly sulphide material that amounts to a total resource of 432,000t of contained copper.

By way of comparison, $200m capped AIC Mines, owner of the Eloise and Jericho mines in Queensland, has a resource base of ~295,000t of copper with gold credits.

Austral has started a pre-feasibility study on its nearby Lady Colleen deposit, which on early scoping study numbers could increase its operating life by five years from 2024-25.

“Even less of these producing companies have a similar substantial large tenement holding, located in a world class copper district,” Spence said.

“[They] hold not only a significant global resource base to build on, but have strong potential for delineating and discovering substantial additional oxide and copper resources such as Lady Colleen and Lady Annie, capable of being rapidly converted to mining reserves for near term production from already granted mining leases.

“AR1 has that rare mix of revenue through recently increased copper cathode production, comfortably fully funding a large aggressive exploration campaign with 2023 drilling testing several targets underway.

“This combination of revenue and anticipated success from fully funded exploration, we believe, has the potential to see the Company’s current low capitalisation significantly re-rated in the near term.”

Enormous tenement package

AR1’s potential has been identified by major names such as Thiess, the world’s biggest mining contractor which is a large shareholder and is operating the mine, and Glencore, AR1’s offtake partner which provided US$15 million in the form of a pre-payment to help Austral establish the Anthill operation.

The operation provides important domestic feed to Glencore’s Townsville refinery.

Spence says Austral is likely to extend Anthill beyond its remaining three year mine life.

But Austral has an enormous 2147km2 package including both near mine and regional exploration targets, providing a platform for growth.

Over 22,000m of drilling is planned this year across a catalogue of oxide and sulphide targets.

Lady Colleen is the most advanced prospect outside the Anthill mine, with an independent scoping study by CSA Global confirming its robust economics last month.

According to the study, the deposit would produce 44,000t of copper from a mineral resource of 2.8Mt at 1.9% Cu, with 91% of its resource in the measured and indicated category.

The rest will be upgraded to indicated, with further drilling, with the project possessing a pre-tax IRR of 38% over five years and pre-tax NPV of $60m.

At C1 operating costs of US$2.78/lb and a conservative copper price of AUD$12,000/t used in the Scoping Study, the mine is expected to pay back its capital in just 2.6 years through a mix of heap leach and flotation processing. Today copper sits at around AUD$13,400/t, worth an additional $61.6m in revenue to the Lady Colleen project.