Hillgrove's Kanmantoo copper mine is revived and ready to prosper. Pic: Getty Images
Hillgrove’s Kanmantoo copper mine reborn and ready to grow
Mining
share
- Pure play ASX copper companies are few and far between
- The market is increasingly turning to companies who can profit from an expected supply crunch
- Hillgrove Resources is on its way after reviving the historical Kanmantoo copper mine earlier this year
Australian investors with a bullish view on copper encountered a minor pickle following the removal of OZ Minerals from the bourse last year, leaving ASX copper shelves a little bare.
Billions of dollars in funds are now searching for a new home among the diminishing ranks of companies with exposure to the red metal.
Sandfire Resources (ASX:SFR) is by far and away the biggest mid-tier company remaining with a solely Australian listing, but the problem could spiral further if SFR is taken out, an ever increasing likelihood with the company now internationally focused.
While the three big mines operated by BHP and OZ (Olympic Dam, Prominent Hill and Carrapateena) helped put a spotlight on South Australia as a ‘tier one’ province, market interest has pivoted to companies that can step up to cover the supply shortfall, and even save jobs.
With BHP’s acquisition of OZ, $117 million-capped Hillgrove Resources (ASX:HGO) is in a league of its own as SA’s go-to junior copper producer following the production of first copper concentrate from its reborn Kanmantoo underground operation in the Adelaide Hills in February this year.
The historic Kanmantoo copper mine operated as an open-pit mine from 1971 to 1976 before HGO resumed exploration in 2004 and defined eight copper-gold-silver deposits around the old pit.
The copper developer then ran an open pit operation from 2010 to 2020, producing ~137,000t of copper and ~55,000oz of gold before the 3.6Mtpa process plant and tailings storage facility were placed on care-and-maintenance.
But while Hillgrove knew the lodes mined in the open pit continued at depth below its base, they weren’t sure how far they went.
A modest program of initial drilling was carried out and quickly identified a million tonnes of resources below the main pit, spurring the start of additional drilling campaigns in 2023 that led to the publication of a quickfire four-year mine plan and final investment decision last June.
Within eight months, Hillgrove was producing copper concentrate.
Eight years … and counting
Since then, HGO has reported a maiden underground ore reserve – resources that are commercially recoverable using existing technology and realistic pricing – of 2.8Mt grading 0.91% copper and 0.15g/t gold containing 26,000t of copper and 14,000oz of gold.
That includes 1.1Mt proved at 1.01% copper and 0.04g/t gold.
As of October, resources sat at 19.3Mt grading 0.77% copper and 0.14g/t gold, containing 150,000t of copper metal and 82,000oz of gold across Kavanagh and Nugent as well as, for the first time, the North Kavanagh and Emily Star mine areas. The upgrade delivered a 96% increase in copper metal and 138% in gold on a previous 2022 estimate.
Production is only just ramping up, but HGO hit a copper run rate of close to 12,000tpa for the September quarter. While four years was the initial starting point, converting resources to reserves could bring line of sight for an eight to 10 year mine life.
Attractive from multiple standpoints
There are a number of reasons why HGO CEO Bob Fulker likes Kanmantoo, but the main one is geology.
“There’s continuity down dip and there’s consistency,” he told Stockhead.
“It’s low grade but when you put consistent geology, consistent grade and a great cost structure together you can actually get an economic mine to return good value to shareholders.
“There’s also huge upside from a longevity perspective –we’ve got the extensions to Kavanagh, Nugent and Spitfire as well as Emily Star along strike, plus we’ve got about four or five other pits that we haven’t really drilled underneath yet, so there’s a lot of opportunity and potential.”
The project’s location smack bang in the middle of mining towns Callington and Kanmantoo, only 55km south-east of Adelaide, also makes it attractive.
It sees Hillgrove supporting the local community with a predominantly residential workforce without the disruption of a fly-in-fly-out roster, allowing workers to be home by 7pm with access to all of the amenities Adelaide has to offer.
Kanmantoo is also fully connected to the South Australian power grid, which is supplied by more than 70% renewable energy generation, considerably reducing the project’s carbon footprint.
Adding resources with more drilling
Hillgrove’s is now laser focused on both production and continuing the drilling program to convert additional resources into ore reserves.
“Our focus continues to be on reliable delivery, building cash, and earning the right to grow,” Fulker said.
With just 40% of the plant’s capacity being used and the tailings storage facility boasting far more capacity (7Mt) than required for the current mine plan, there is plenty of scope for production growth.
Additional copper tonnes are likely to be added through diamond drilling down dip and along strike within the main Kavanagh-Spitfire mineral system.
To increase efficiencies, HGO plans to connect the Nugent and Spitfire open stopes and set up a haulage loop with access points to create separation and different levels underground.
Fulker, whose litany of successes include key roles in the growth of multi-billion dollar miners OZ and Evolution Mining (ASX:EVN) as COO, said limits to Kanmantoo’s mine life are heavily down to drill density, and he anticipates this to increase as drilling continues to deliver resources.
Besides Kanmantoo, HGO also holds ~6500km2 of exploration ground in the South Australia’s south-east, encompassing several projects the company could follow up.
These exploration assets are connected to Kanmantoo through both Highway 1, the main highway between Melbourne and Adelaide, as well as the main rail freight line between the two cities.
At a macro level, copper is increasingly being viewed as the market of the future – the primary M&A focus of global majors like BHP, Barrick and Teck. With markets tight, it hasn’t been sold off anywhere near as badly as lithium or nickel in the past year’s battery metal bust and prices are still historically strong at over US$9000/t.
Dropping copper head grades across the world mean that more production and mining capacity is required to both maintain existing production levels and expand supply for the energy transition.
The logical conclusion is copper prices will have to rise to provide an incentive for this to happen. Goldman Sachs analysts think we need US$13,000/t copper prices to bring on new mines to meet 2030 demand levels.
Hillgrove’s advantage is the capital on key infrastructure is already sunk and Kanmantoo is heading to steady state production. While others will need those prices to get off the ground, Hillgrove will be ideally placed to profit.
The reporter travelled as a guest of Hillgrove Resources.
At Stockhead we tell it like it is. While Hillgrove Resources is a Stockhead advertiser, it did not sponsor this article.
Read MoreCopper
