Well, copper production is only weeks away. The market and commodity prices just now starting to improve. Good to see the share price beginning to rise. (Rememeber when those conservative banks got their 'cheap' shares at 25 cent in order to finance the Kanmantoo project, at a large discount to the then prevailing price? ... the banks obviously saw value at 25 cents.
Rewind to the end of 2009. At that point, HGO decided to turn their backs on a JV or sale of Kanmantoo, and instead wanted to go it alone. Now they didn't get the extra top-up money from Santos/ESG, so instead had to get finance. That knocked the share price back, and the timeframes back in terms of a return. The HGO Board decided that, if they couldn't achieve an acceptable sale/JV price, they would play the long game and instead become copper producers.
And that day, of being a copper producer, is upon us. Expect a strong promotion from the company. And that means a share price response.
A few things happen when you become a copper producer and get through the commissioning process:
(1) the market begins to rerate you as a producer rather than an explorer/developer. Producers trade at much higher prices per pound of in situ copper than do explorer/developers. (a graph along these lines would be great HGO. :) )
(2) The company then comes on the radar of institutions who only invest in producers. Expect some new instos to come onto the register, providing upward pressure on the share price.
(3) Once you have an operating mine (with spare capacity), extra ore within cheap trucking distance can be put through the mill. Extra unhedged production. Resource to reserves upgrades (think about it, when you have a route to market and an operating mill, marginal ore becomes economic). And any extra copper discoveries, even at a modest grade, can increase your mine life. This greatly affects the NPV of the project.
(4) And once you tick all the boxes, the bank gives you 'the deed to your house' back. or in this case, the mine.
The market is far from buoyant. But with much of their early production hedged, HGO looks ready for at least a modest rerating as it transitions to a cash-flow positive producer. And any extra production will be unhedged. Downside protected, upside exposed.
And might a larger fish wish to bolt on extra copper production to their own company via HGO? Maybe. Green and brownfield exploration is one thing - the benefits of that get monetised years down the track. But extra production whilst copper prices are strong ... now that is GOLD! (or, should I say, copper, and gold. :)
Yaq
HGO Price at posting:
25.0¢ Sentiment: Buy Disclosure: Held
