Tim Treadgold: Will this second time be the one for Nzuri?
Link copied to
It’s not easy for a stock to rise by 30 per cent over two weeks without anybody seeming to notice.
But that’s the case with Nzuri Copper which faded from view earlier this year after a false start, but which is returning for a second attempt to launch a stalled copper and cobalt project.
The proposed Kalongwe mine has some of the most attractive financial metrics of an asset owned by an Australian-listed miner, though Kalongwe’s greatest strength is also its greatest weakness, a location in the super-rich but often troubled copper belt of Africa.
If Kalongwe was located anywhere other than the Democratic Republic of Congo it would be a genuine rock star, spinning off fat profits from its shallow orebody which has an average grade of close to 3 per cent copper and 0.3 per cent cobalt, material which is expected to cost less than $US1 per pound to produce.
At the latest copper price of around $US2.83/lb, Kalongwe is expected to operate at a profit margin of close to 100 per cent, achieving payback on its estimated capital cost of $US53 million in just 17 months.
The problem, as other Australian miners working in Africa have discovered, is that local conditions, especially local politics, can be more difficult to master than anywhere else in the world.
Ready to go in January, Kalongwe hit a road block in the form of a new Congo mining code which stalled a number of proposed developments and confused all of the big players in the country, including industry leader, Glencore, and emerging leader, Ivanhoe Mines.
Sanity appears to have returned with the government keen to get mine investment moving again, though an essential first step is a national election scheduled for December 23.
Investors got a sniff of Kalongwe’s return towards the middle of last month, running the stock up by 30 per cent from 23c to 30c between November 23 and 28, before easing back to around 27c, which is still 50 per cent up on the August low point of 18c – but well down on the 48c high reached in mid-January, just before the rule-change in Congo forced a re-think.
Assuming all goes smoothly Nzuri will finally get the clean air it needs to demonstrate that it not only has a highly profitable development poised to go ahead but that it is sitting on some of the best exploration acreage in the world’s best address for copper and cobalt.
The good landslide
Nzuri chief executive Mark Arnesen does a good job masking his frustration with what happened earlier this year, though he did learn one important lesson and that’s to not publish an expected time-line for development and first copper, just in case history repeats.
The comfort for Arnesen and his big backers, including London-based Tembo Capital with its 48.5 per cent stake in Nzuri and China’s Huayou Cobalt with 14.7 per cent, is that the geology at Kalongwe and the surrounding region has not changed.
It’s still jam-packed with copper and cobalt.
Arnesen laughs when it is suggested that he’s hoping for an early Christmas present with a clear-cut result in the upcoming election, but behind the smile is a serious point which either makes Nzuri a stock to treat carefully in case there’s another Congo surprise, or a stock to buy with gusto once the local politics are settled because the numbers are so attractive.
Plenty in reserve
To inject a few of those numbers around Kalongwe it is a project in which Nzuri has an 85 per cent stake with the balance held by a local Congolese partner and the Congo government.
Reserves have been calculated at 234,868 tonnes of copper and 27,102 tonnes of cobalt – with more in the resource category.
Annual production in the first stage, which is expected to last eight years, is forecast to be 18,657t of copper and 1370t of cobalt in a concentrate form.
A second stage, using SX-EW (solvent extraction and electro-winning) technology is expected to last another 14 years.
Life of mine cash cost is expected to be US85c with a 99 per cent internal rate of return on a pre-tax basis and 76 per cent after allowing for taxes.
Swimming with sharks
Even with its attractive financials and high return on investment, Kalongwe is very much a starter project for Nzuri which controls 343 square kilometres of exploration tenements in a region adjacent to some of the world’s biggest copper projects.
Ivanhoe’s Kakula project, located about 20km to the north contains an estimated 408m/t of material assaying 3.08 per cent copper, while Kamoa, another Ivanhoe project, is said to contain 937m/t at 2.55 per cent copper.
The next few weeks are critical for Nzuri as it gets ready to re-start work on Kalongwe, and while the project should be handsomely profitable, it’s the bigger picture which is more interesting given the high likelihood of more copper and cobalt being discovered either on Nzuri’s tenement or its joint venture it has with Ivanhoe.
With a stock-market value of $80 million, Nzuri is a minnow alongside Ivanhoe’s $C2.5 billion on the Toronto stock exchange, a size difference which must make for interesting joint venture meetings.
Ivanhoe teaming up with Nzuri was a major vote of confidence in the potential of the tenements controlled by the small Australian-listed stock, perhaps even more important than the Kalongwe starter mine because it points to the potential of bigger projects in the future.