Can copper miner Aeris Resources rebound by tripling production with Round Oak deal?
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Copper and gold junior Aeris Resources (ASX:AIS) rode last year’s boom in copper prices to market darling status.
Powered by the crystallisation of a deal to buy Evolution Mining’s (ASX:EVN) Cracow gold mine, the NSW and Queensland focused miner was one of a handful of gold producers to enjoy a lift in its market value as the rest of the sector floundered.
That enthusiasm has dissipated with copper prices sliding and rising inflation making things a whole lot harder for Australian miners.
Aeris shares have fallen 55.63% year to date, well below the 13.32% lopped off the ASX 200.
But this isn’t necessarily a story of doom and gloom, with some potential triggers on the horizon for the $225 million capped stock.
Most notably shareholders on Friday approved a deal to absorb Washington H. Soul Pattinson’s (ASX:SOL) copper and zinc business Round Oak Minerals.
The $234 million arrangement, which comprises shares and an $80 million cash payment funded by a recent $117m equity raise, will see Soul Patts become the major 30% owner of Aeris in exchange for ownership of its Jaguar mine in WA, Mt Colin in Queensland and the proposed long life Stockman development in Victoria.
It came after Soul Patts jettisoned a planned IPO in November last year, despite the success of EMR Capital’s $512 million float of its Golden Grove and Capricorn copper mines into 29Metals (ASX:29M).
The deal is expected to close on July 1, and transform Aeris into a mid-tier base metals and gold producer.
While Aeris is yet to release its guidance for FY23, that deal will in the immediate term lift its production profile from 18.5-19.5kt this year to 63,000t copper equivalent.
It will also boost Aeris’ exposure to critical minerals for the transition to green energy, with Jaguar’s zinc output adding to its expertise in copper and gold mining.
“You go from two mines to four mines, all in a position with an operating cash flow coming out of it that sets you up to invest in the future growth of your operations,” Aeris executive chairman Andre Labuschagne told Stockhead.
That additional cash generation will be important for the growth of Tritton, where the development of a number of new orebodies, including the high grade Constellation discovery, will boost production from 20-22kt in FY23 to 21-23kt in FY24 and 30-33kt in FY25.
It will also provide a runway for the development of Round Oak’s Stockman copper and zinc project, which has a 10-year reserve life.
“Specifically for Tritton (it is) going to an eight-plus-year mine life, (we’ll be) investing in Jaguar and extending the mine life up there,” Labuschagne said.
“Then the Stockman project, we can get that off and going in the next two to three years, all of that changes the whole profile of the business and the production profile of the business with bringing long life assets into production.”
Labuschagne says Aeris will complete an ongoing definitive feasibility study started by Round Oak on Stockman, which carried a $269 million price tag at its last economic assessment, with an FID due in the first quarter of FY23.
Over the past month copper prices have fallen to 16-month lows, with three-month copper contracts on the LME down to US$8381/t on Friday.
That is down around 20% from all time highs a little over a year ago above US$10,700/t despite supply side issues in Chile, the world’s largest copper producing nation where labour strikes have become increasingly commonplace most recently at Codelco, the leading miner globally.
Copper stocks at metal warehouses of last resort are also low, but poor demand from the commodity’s main consumer China has weighed on the commodity price as Covid-related lockdowns have slowed its economy.
Mining equities have also been impacted by inflation, the consequence of rising interest rates and nervous markets following Russia’s invasion of Ukraine.
But prices remain high in a historical sense, and Labuschagne says the outlook for copper remains very strong given its role in decarbonisation and electrification.
“I don’t get involved with copper forecasts or commodity forecasts because we tend to get it wrong all the time,” he said.
“But you just look at the metrics in terms of supply and demand for copper it is very strong, so you would argue that there’s a good future for copper. And I know there’s a lot of interest from investors, specifically into copper companies.
“Will being in copper be better than other commodities, it’s hard to say, there’s a lot of other commodities also driven by this drive on sustainability and renewables.
“So we are just in a position now we’ve got operating assets in a very good price environment.”
With those long-term drivers for copper demand still intact, Labuschagne said it’s important investors don’t get lost in the short-term struggles Aeris and other companies are having in the current market.