Barry FitzGerald: As tailwinds blow, Caravel’s giant WA copper deposit has massive upside

“Garimpeiro” columnist Barry FitzGerald has covered the resources industry for 35 years. Now he’s sharing the benefits of his experience with Stockhead readers.

Caravel Minerals (ASX:CVV) is closing in on becoming Australia’s next big copper producer from its namesake project near the town of Wongan Hills in Western Australia’s central wheatbelt region.

The copper market has moved in the project’s favour, with prices marching to near record levels in response to the greater appreciation of the looming supply deficit in the red metal. That’s all thanks to its central role in global electrification and the rise of AI.

Copper was quoted mid-week at $US4.91 a pound, which is 25% higher than its starting point for the year, and 18% higher than its average for calendar 2024.

Discovered in 2010 and now at 3Mt of contained metal, Caravel has grown to be one of the biggest undeveloped copper deposits in the world not owned by a major mining company. An updated preliminary feasibility study in 2023 confirmed it would be a robust project at a $US4/lb copper price.

The update pointed to a $1.67 billion development producing 65,000tpa of copper along with molybdenum, gold and silver. Using the US$4/lb copper price assumption and a US72c exchange rate, the pre-tax net present value (7%) was $2 billion.

Assume US$4.50/lb copper and the NPV becomes $2.9 billion. Plug in US$5/lb copper and the NPV takes off to $3.8bn.

That potential has yet to be recognised in Caravel’s share price. The company was valued mid-week at $140 million. It is modest to say the least given the scale of annual production and the multi-decade mine life.

Tailwinds blowing stronger

Compare the company’s market cap to that of the string of ASX copper producers and developers that have been taken over in recent times at fancy premiums and its relative under-valuation becomes clear.

With the exception of OZ Minerals, which went to BHP, none of the copper companies/projects taken over recently have the scale or mine life of Caravel.

The market has held off getting behind the stock because of the capex required to get the project into production and because of the 0.24% copper grade. The grade is low compared with other Aussie copper projects held by ASX companies but it is common elsewhere in the world.

It gets down to deposits like Caravel being amenable to low-cost and long-life bulk mining to create margins across large metal output.

A definitive feasibility study on Caravel’s development is now underway and is due for completion around March next year. The key metrics of the project will have changed from the 2023 PFS update.

There will be the headwind of the inflation impact on capital costs.

But the tailwinds are blowing stronger. There is now consensus on copper prices remaining well above US$4/lb. Then there is the benefit of the lower exchange rate, and the benefit to a copper concentrate producer like Caravel of the collapse in treatment and refining charges.

So the DFS stands as a major re-rating event for the stock which traded mid-week at 25c a share.

Moving along nicely

As it is, the share price up nicely from 17.5c on November 6 due to the emergence of another major re-rating event for the company on November 7.

It was the signing of a non-binding strategic collaboration framework with India’s powerful Adani group, the owner of the shiny new 500,000tpa Kutch copper smelter/refinery in the western state of Gujarat.

The collaboration will cover funding to advance Caravel towards a final investment decision in 2026 and the negotiation of a potential life of-mine offtake agreement covering 100% of Caravel’s production for processing at the Kutch smelter.

At the same time, Caravel is working with leading banks to structure a financing package, including what could be available from export credit agencies, alongside traditional debt and equity.

The Kutch smelter is no different to other custom smelters in that it needs to secure concentrate supplies in what has become a tight market.

That is particularly the case if it proceeds with plans to expand production to 1Mtpa of copper to meet India’s growing domestic needs.

Caravel was no different to any other junior with big time development and production ambitions but with a capex hurdle to clear and offtake arrangements to secure.

Now it can be said the company has the copper market working in its favour in a major way, and it has the can-do might of Adani in its corner.

The views, information, or opinions expressed in this article are solely those of the columnist and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.