Guy on Rocks: The junior copper play that could have the next DeGrussa
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‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week.
Former geologist and experienced stockbroker Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
It seems to be the time for banks to adjust their metals forecasts up.
“On the metals front, I see the major banks are upgrading their medium to longer term forecasts, all of which were notably out by between 15 and 20 per cent,” Le Page said.
“So not surprising they’re playing catch up there.”
Some numbers are also coming out from China on its third-quarter recovery.
“The outside view is there was a 4.7 per cent GDP growth year on year and a steady return to a 6 per cent trend by fourth quarter, which is obviously pretty bullish,” Le Page noted.
“Probably what was more relevant was industrial production rising by 4.8 per cent year on year and a PMI expansion at 51.1 compared to 50.9 in June. So that was positive.
“And getting down to what affects us here in Australia, steel consumption had a very strong increase to 14 per cent year on year compared to 10 per cent in June. So that’s continuing the theme of strong growth in the steel sector.”
“I think that may be perceived as a bit of an increase in risk in doing business in Australia, which is not necessarily positive, but I think the move has been probably overdue. So I think overall it’s positive.”
Nickel has been going great guns, up 37 per cent since the COVID-19 market bottom in March.
“We’ve seen a lot of strength in nickel, now over $US15,000 a tonne,” Le Page said.
“Interestingly if you look at the China nickel supply, there’s a lot more coming from nickel pig iron imports (NPI) from Indonesia.
“That increased from about 354,000 to 540,000 tonnes this financial year. So I think while the market is temporarily in surplus, the medium-term outlook looks pretty strong.
“So that bodes well for our nickel players here, of which there are very few to invest in.”
In the iron ore space, Venture Minerals (ASX:VMS) this week started dry screening and associated mining operations at its Riley direct shipping ore mine in Tasmania.
With spot iron ore prices hitting a seven-year high, the project economics are sitting much higher than forecast as the company nears production.
An August 2019 feasibility study estimated the Riley mine would deliver a post-tax cash surplus of $31m over the two-year production life, but that was using a base case of $US90 ($123) per tonne for 62 per cent iron ore.
Iron ore is priced on three grades: 58 per cent (low grade), 62 per cent (benchmark) and 65 per cent (premium grade).
The Riley mine is only a small deposit, around 2 million tonnes, but it is direct shipping ore (DSO).
DSO refers to minerals that are high grade and require only minimal processing such as crushing before they are exported, which keeps costs low.
“At $US125 ($171) a tonne iron ore, it looks like their surplus now is well over $60m over two years,” Le Page said.
He predicts these improved economics will help drive Venture’s share price up from the low-3c-per-share mark it is now to high-4c-per-share “pretty soon”.
“They’ve still got a bit of work to do on financing the wet screening plant, but I think that’ll come,” Le Page said.
De Grey Mining (ASX:DEG), meanwhile, is continuing its run of success with still more thick, high-grade gold hits at its Hemi discovery.
This week the company reported its best intercept yet of 64m at 13.4 grams per tonne (g/t) of gold from 141m, including 19m at 42g/t from 170m and 8m at 84.7g/t at its Crow target.
Managing director Glenn Jardine says the mineralised footprint at Crow is currently about 1,000m by 400m and remains open.
“A very broad zone of oxide mineralisation, which is pretty impressive,” Le Page said.
“I still think they’re on track for that 5 million ounces.”
Le Page’s hot pick this week is Strickland Metals (ASX:STK), which previously went by the name Alloy Resources.
Strickland has a prospective patch of ground not far from Sandfire Resources’ (ASX:SFR) producing 1.5-million-tonne-per-annum DeGrussa gold-copper mine in the Bryah Basin region of Western Australia.
“Obviously that was a huge discovery back in 2009, not long after Sandfire had floated in fact,” Le Page said. “A spectacular copper-gold discovery, obviously it was a company-maker.”
A versatile time domain electromagnetic (VTEM) survey highlighted a bedrock conductor “right under the surface copper gossan anomaly”.
“They’ve done a FLTEM (fixed-loop time domain electromagnetic) ground survey over about 2.5km and confirmed that conductor that was initially picked up with the VTEM survey goes to around about 1000m to the northeast of that discovery and getting deeper,” Le Page said.
“So I think that’s a pretty interesting target. There’s been a lot of exploration up around that Bryah Basin with not a lot of results. Venture Minerals had a couple of small copper projects they drilled up, but in terms of world class or large high-grade copper-gold projects there hasn’t been a lot of success in the immediate vicinity.
“I think at a (market) cap of $12-13m this is a cracking project.”
At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting and corporate advisory roles.
He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada and the United States.
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