Havilah boss admits Kalkaroo will take start-up cash, but the company has… Sanjeev Gupta?
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Following the release of the numbers for Havilah Resources’ Kalkaroo copper project, CEO Walter Richards conceded to Stockhead that the project would take a bit of start-up cash, but that Havilah has a number of options for funding it.
Richards said the economics for the South Australian project stack up.
The results of the pre-feasibility study indicate Kalkaroo will have an estimated pre-tax net present value (NPV) of $564m and an internal rate of return (IRR) of 26 per cent at a copper price of $US2.89 ($4.22) per pound of copper and US$1200 per ounce of gold.
NPV and IRR are metrics used to assess the profitability of a project. The higher the NPV and IRR, the more profitable a project will be.
Havilah says the Kalkaroo project will be highly sensitive to commodity prices with a 10 per cent increase resulting in a 48 per cent jump in the pre-tax NPV to $835m.
The mine is expected to produce an average of 30,000 tonnes of copper and 72,000 ounces of gold each year over an initial 13-year period.
But the price tag for initial start-up is $332m.
“I think there is two immediate concerns: one would be what can we do to increase the profit margin because that’s going to allow us to accept more risk in the project, and what can we do in managing the capital cost down, because for Kalkaroo the real challenge is overcoming the financing hurdle,” Richards explained.
“I think the economics stack up, but $332m of initial start-up capital when your market cap is only $30m, we’ve got to be realistic about that. That’s the immediate challenges to overcome.”
Richards isn’t worried though, outlining a number of options including the potential backing of Indian billionaire businessman Sanjeev Gupta.
Havilah announced just last month that it had struck a deal with SIMEC Mining, a member of the Gupta-backed GFG Alliance, that would see it receive a $100m cash injection to fund its iron ore projects and the copper-cobalt prospects in the Mutooro district.
“Assuming our shareholders approve that deal, we are going to have a large shareholder on our register that has the balance sheet to potentially support the development of Kalkaroo as well,” Richards said.
The other options on the table for Havilah to fund Kalkaroo are to bring in a partner and potentially sell down to become the minority partner or selling the project entirely.
“We don’t have to be the operator and we don’t have to dilute our existing shareholders,” Richards said.
“So that our existing shareholders don’t take up all the risk associated with a getting a large project up and running, we are happy to share that risk with another partner.
“All these options need to be on the table and ultimately we’ll pick the option that gives the best outcome for our shareholders because that’s the way we should be looking at it.”