• Aeris Resources shares have fallen almost 60% YTD
  • The copper and gold producer placed its Jaguar mine in WA on care and maintenance amid a string of operational challenges
  • Exec chair Andre Labuschagne says he has no regrets about the Round Oak Minerals deal that brought Jaguar into Aeris’ portfolio, eyeing long-term tailwinds for the copper market

 

It hasn’t been the happiest of times to be an Aeris Resources (ASX:AIS) shareholder of late.

The company is one of only a handful of copper companies of substance on the Australian bourse, offering rare exposure to the red metal and its future as a key cog in the energy transition, a market denuded by the $9.6 billion purchase of OZ Minerals by iron ore giant BHP (ASX:BHP) this year.

But its FY2023 performance was forgettable to say the least, and memorable for the wrong reasons to say the most.

After completing a $234 million deal to acquire Round Oak Minerals from Washington H.Soul Pattinson (ASX:SOL), Aeris stood poised to deliver 57-71,000t of copper equivalent production and $140-170m in EBITDA.

But the best laid plans of mice and men often go astray.

One of the market’s handful of true gold and copper darlings a couple years ago, a series of operational challenges including cost inflation and production problems at the Jaguar zinc and copper mine in WA, acquired in the Round Oak transaction, saw the company led by executive chairman Andre Labuschagne (yes, that Labuschagne family) withdraw earnings guidance as CuEq tonnes came in at 51,500t.

It is more conservative again for FY24, guiding production of 40-50,000t CuEq after announcing plans to place Jaguar on care and maintenance in September as equipment congestion and ventilation constraints cut decline access to the main Turbo orebody.

Shares in the $160 million producer have fallen almost 60% YTD.

A restart study targeting higher mining rates is now in train. Longer term, however, there could be a saving grace for the company, one of the few copper producers on the ASX with a substantial resource and reserve base.

Experts say declining copper stockpiles in the face of a future market deficit that could total 6Mt by the end of the decade, according to Labuschagne, could see prices boom.

We caught up with Labuschagne to process the path back for the miner, which also owns Mt Colin near Mt Isa, the pre-development Stockman project in Victoria, the Tritton copper mine in New South Wales and Cracow gold mine in south Queensland.

 

Do you look back on the Round Oak Minerals acquisition with any regrets in hindsight?

“No not at all, actually. Yes, there’s a challenge at Jag. But when we bought the Round Oak assets, we only assessed the value of Jag as being the Turbo deposit.

“Since we bought it the Turbo deposit has nearly doubled in size. And with the new plan we’re putting in place we actually are going to bring more resources in from other ore bodies and get the timing right so you can increase production and increase life.

“So when we bought it, Jag had three and a half years of mining Turbo and now we’re saying ‘well we think there’s seven plus years because we bring all these other deposits in’. So although it’s a setback, I think the right decision has been made not to mine resources at a loss, reset the business to increase production and then create life.

“Mt Colin has delivered to what we thought it would do. The feasibility study for Stockman is ongoing and looks at a 10 million tonne reserve at a plus 3% copper equivalent. There’ll be a project there, we just need to finish it off. So absolutely not. It is a bit of a setback but the plans are there to recover.”

 

Aeris Resources (ASX:AIS) share price today

 

How do you feel about the copper price? We’ve obviously seen a lot of stagnation this year, it’s pushing on your margins being a higher-cost producer. Do you see a pathway there for the price to go back to that US$5 a pound plus that we saw a couple of years ago when you were making pretty good money out of Tritton?

“Yeah, look. I don’t know is the answer.

“But when you look at all the indicators for the market, supply and demand, there is a potential 6 million tonnes shortfall in terms of copper demand and supply in the next five to 10 years.

“So you look at that and you have to assume that the price will eventually adjust because what has happened over the last two years the price has stayed pretty flat, but cost has increased by 20 or 30% annually.

“All the producers’ and operators’ margins have been squeezed. At some point you’ll have to see a reset in price. When that’s going to happen? The market is so sensitive these days about day-to-day news coming out so there’s got to be a bit of a reset in that I think for it to happen. The real fact (is) that there is a shortfall in stocks, which I believe will trigger the reset.”

 

Is it tough for Australian investors because there just aren’t a lot of options to get exposure to that copper price if it does shoot up at the moment?

“Look, I think it is tough for them because if you look at the market you know OZ minerals is out, Sandfire Resources (ASX:SFR) is there doing well. But then below them there’s quite a few of us sitting in the next place and all of us had some challenges of our own.

“So I think it is difficult for Australian investors to find exposure.

“But I think they also need to take the long-term view on their view on copper and be sticky in these companies and not just get out when … there’s issues or challenges, because at the end of the day it’s about the resource in the ground which will create the future value when these prices turn or when it goes.”

 

Do you feel you’ll have the patience and support of investors to turn that ship around to grow Tritton and get things back on track with the old Round Oak assets?

“I think so. Time will tell obviously, some investors are short-term focus some are long-term focus, but you need to just find the right investors to support going forward and we’ve got Washington Soul Patts as a 30% shareholder, which is very supportive of growth, very supportive of where we want to take the business – so that in itself is a great support for future growth.”

 

In terms of the gold side of the business Cracow’s output has sort of been dimming the last year or so. Do you need to have a new discovery to pick that one up? Is there a chance that you could maybe try to sell it and just focus on the copper side?

“At this stage we see Cracow as our option value for us. It pays its own bills, makes a bit of money to treasury. There is a huge potential exploration opportunity down south. If you find something there you’re going to find million ounce ore bodies and that will be a reset.

“So while it pays for itself and contributes to an extent to treasury, I think it’s worth testing that Southern Vein Field to see what you can find and that will be done in the next 12 months. But we do see a future for Cracow within the business.”

 

Out at Tritton, obviously it’s the longer-term asset for the business and you made the Constellation discovery a couple of years ago down there. Do you see a future where you’ll be able to mine there a bit longer at higher grades once you bring Constellation online?

“Oh yeah, absolutely. For Tritton, we invested a lot of money in the last two years to bring new mines online with better grades with Avoca Tank and Budgerygar coming online now.

“So you’ll see the average grades start to pick up and then you’ve got those ore bodies all extend further at depth. And really we’ll see the production growth for Tritton.

“Then when you bring Constellation on board with a 10 million tonne resource and mining six or seven thousand tonnes annually you can work the maths yourself. That’s a substantial increase in life and there’s enough other ore bodies around to support that model.”

 

Do you think your position in the market is still sort of secure in a way just because of how few copper options there are for Australian investors?

“Look I think so. It is about delivery, though. We had, as I said earlier, a soft 2023 in terms of delivery and there’s a whole bunch of stuff which we did and didn’t do.

“But FY24 with better grades coming out of Tritton, market getting more comfortable that yes, you’re generating cash and there’s a way forward. We are one of the producers out there with enough assets and resources to become a substantial business and support from investors to do that.”

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