Ground Breakers: Massive lithium upgrade makes Allkem a James Bay-be, Newcrest delivers penultimate dividend

Early moving Allkem boosts James Bay lithium resource 173% to 110Mt at 1.3% Li2O
Newcrest announces $275 million payout as Newmont merger looms
Could Wyloo backed Greatland Gold make a play for Telfer?

All roads lead to James Bay right now, and one of the first movers in the Canadian lithium province du jour has reinforced why with a new resource update placing it within the world’s top 10 hard rock deposits.

$9 billion capped Lithium giant Allkem (ASX:AKE) has bolstered the resource at its James Bay project by 173% to 110Mt at 1.3% Li2O.

54.3Mt of that is indicated, meaning at the right economic settings (and spodumene prices can certainly be described as very economic these days) it can be incorporated into a reserve on which to base mining studies.

Another 55.9Mt at 1.29% Li2O is in lower confidence inferred resources, on the back of 37,500m of frilling completed since a feasibility study a couple years ago and includes a maiden resource for mineralisation in the north-west sector of the project that remains open along strike and at depth.

“James Bay is now one of the largest spodumene lithium assets and clearly has the potential to grow even further as the boundaries of mineralisation are tested through an additional drilling program commencing later in the year,” Allkem MD Martin Perez de Solay said.

“The size and grade of this resource is amongst the best in the world and will underpin Allkem plans for future production and processing of lithium in Québec.”

Allkem is already one of the world’s biggest lithium producers, selling lithium carbonate from its brine-hosted Olaroz project in Argentina, lithium hydroxide from the Naraha plant in Japan and spodumene from the Mt Cattlin mine in WA.

Its Sal de Vida brine in Argentina is under construction while a $16 billion merger with US-listed Livent — owner of the El Fenix operation in Argentina and half of the Whabouchi deposit in Quebec — is expected to close later this year.

It took Allkem five years to win federal environmental approval for James Bay, granted with a raft of conditions earlier this year, a nod to the complex regulatory environment in North America’s new lithium heartland.

A feasibility study in December 2021 placed a US$286m capex bill on developing the mine, expected to produce 321,000tpa of spodumene concentrate over an initial 18.75 year life.

It places James Bay, at least on tonnages, slightly above Patriot Battery Metals’ (ASX:PMT) recently announced Corvette resource as the largest in Canada, though at 1.42% Li2O Corvette’s CV5 pegmatite is higher in grade.

Allkem (ASX:AKE) share price today

Investors bank $275 million as Newcrest edges towards Newmont merger

Despite falling profits, Australia’s only ASX 20 gold miner Newcrest (ASX:NCM) has delivered almost $275 million in returns to shareholders as it clears its war chest ahead of an impending takeover by the world’s largest gold producer Newmont.

NCM will deliver a US20c per share final dividend, taking total returns for the year to US55c after it shocked with a big interim payout seemingly designed to put a brave face after Newmont’s initial offer for the Cadia producer was knocked back.

In sum that’s $275 million (Aussie) for the final payout and a touch over $750 million for the full year, a 16% increase on the payout in 2022 and well beyond its stated policy of 30-60% of free cash flow.

That came despite an 11% drop in statutory and underlying profit from US$872m last year to US$778m this year.

However, free cash flow swung from negative US$868m in FY22 to US$404m in FY23, on 2.1Moz of gold and 133,149t of copper production at all in sustaining costs of US$1093/oz.

On average realised gold prices of US$1797/oz, unchanged year on year, Newcrest delivered a margin from its Cadia, Lihir, Telfer, Brucejack, and Red Chris mines, and share of Lundin Gold of US$680 on every ounce of gold produced.

It expects to deliver 2-2.3Moz gold and 120,000-140,000oz of copper, more conservative than last year’s metrics with AISC of US$2.2-2.6b, sustaining capex of US$560-640m and non-sustaining capex of US$610-735m with US$130-150m set aside for exploration.

How much of that remains within the enlarged Newmont portfolio will be found out later. After the shareholder vote in October and expected close in November, mines that don’t fit Newmont’s perception of Tier-1 mines (potentially mines like Newcrest’s older, higher cost Telfer in WA) will likely be sold off.

Looking at Newcrest assets

Any number of companies could be eyeing off some of those mines should the deal go through.

Evolution Mining chairman Jake Klein signalled the gold miner, to be Australia’s second largest on the local exchange, could be keen to take a look at what falls out of the shake up if the deal stacks up.

He was not bullish on ideas of buying the Telfer asset though, saying Evolution had a number of ex-Newcrest people in its team who knew the mine and its complexities.

The future of Telfer is largely dependent on the success of the development of its satellite Havieron deposit.

Newcrest holds a 70% interest in the project, which will produce 160,000ozpa over an initial nine year mine life at an average grade of 3.72g/t according to a PFS released in 2021.

The other 30% is owned by Greatland Gold, listed in London but planning an ASX tilt later this year. Backed by Andrew Forrest’s Wyloo Metals, it looms as a potential acquirer of the Telfer mine should it fail Newmont’s investment hurdles.

“We think Havieron-Telfer is in a Tier-1 jurisdiction, high quality, good grade ore body. We think Newmont understands and sees the attraction of it,” Greatland MD Shaun Day said on the sidelines of the Diggers and Dealers forum in Kalgoorlie this week.

“Equally if there is opportunity, we hold a last right of refusal.

“With the shareholder base we have, the strategic investor in Wyloo, the board and management team we have we think we represent a really credible counterparty to Newmont both as a joint venture operating partner or as a potential financial counterparty.”