Why we like Centaurus MetalsOnly >1Mt NiEq metal, <$500m capex,...

Why we like Centaurus Metals

Only >1Mt NiEq metal, <$500m capex, pittable nickel sulphide junior globally

Favourable macro as EV’s see 24% Ni demand lift to 2024 against 2021 production numbers

CO2 / energy security value with <1/10th the CO2 of laterites, and location outside Russia

Taking ‘best trodden’ new route to management, POX; lower technical risk vs. carbonyl route

10Y 75% tax-breaks in well known mining jurisdiction (no rainforest, RAP, indigenous)

Catalysts

2H23: reserves/DFS

2023: step-out / extensional and Jaguar Deeps drilling

2023: greenfields regional exploration drilling

2023: updated MRE

2023: advance permitting


We maintain our BUY rating and our A$3.10/sh PT based on 0.6xNAV7%-9.50 on 45Mt / 364kt Ni inventory. With the stock down 34% over 12M on macro pull-back and a DFS coming 6M later than hoped, but trading at <10% of the bid for peer Mincor, we re-iterate our high conviction on this name. 


While the USA (and likely soon Australian) names benefit from subsidies / warrant a premium, even if Centaurus raised its entire market cap in equity it would trade at 5x less than Mincor, too much in our view. While Brazil doesn’t benefit from many ‘pull’ subsidies, ie cash support for US builders (and potential 10% tax relief under ‘45X’ law, plus existing inflation-reduction act). 

However, ‘push’ may come from penalties for laterite producers, either on CO2 equivalent basis (c 60t CO2 / t Ni vs. <5t for CTM), or in the ‘30D’ US law scheduled to ensure validation of source (ie laterite supplier discrete from sulphides). With DFS and reserve lift, and mine permit, and now resource additions all in the next 18M, our advice: Buy.


Drilling today is a complete surprise – Centaurus is one of our favourite ‘table pounders’ after the recent price drop given its (a) EV/inventory of US$622/t (ie trades at 2.5% of in-situ value) vs. US$7.1k / 30% for Mincor (ie ~1.5xNAV) at bid price, and (b) we expect the 362kt Ni inventory to lift to over 400kt from openpit alone in the DFS. Now we have (c) likely resource growth ahead. The prior 12-18M saw CTM focussed on M&I + bulk met samples, meaning we haven’t seen regional or even step-out drilling in a long time. Now with seven rigs double shifting, development drilling complete, this opens an important ECM front.

Roots and discoveries: The headline 20m @ 4% ~260m beneath the scoping pits is a remarkable hit. As these are structurally-controlled remobilised nickel (unlike traditional cumulate horizons), ‘roots are real’ and we have every hope that this UG will mine for decades. However, the second hit of 11m @ 4.0% on a blind discovery at Jag North is even more interesting to us as it’s a triple-win of outside the MRE, along strike from the MRE, and hit a new blind sub-parallel lode (stepping back for deep hits). With DFS and FEED teams assembled now and ~A$34m in the treasury, the team is well equipped for upcoming technical/design work.