- Market darling Chalice Mining has seen its stock slide almost 20% this year
- Part of the malaise is put down to delays getting permits to drill high priority targets in the Julimar State Forest
- Chalice MD Alex Dorsch says the globally significant discovery is perfectly composed to thrive in the transition to green energy
Found on the western edge of a giant geological feature covering a third of WA called the Yilgarn Craton, few discoveries in recent years have generated the buzz of Chalice Mining’s (ASX:CHN) Julimar.
The very first hole at Julimar unlocked a hidden secret of critical minerals perfectly timed to capitalise on the green energy transition including 19m at 2.59% nickel, 1.04% copper, 8.37g/t palladium and 1.11g/t platinum from 48m.
That propelled Chalice from a $40m capped prospect generator to a $3.5 billion company and the first pre-resource explorer to enter the ASX 200.
Within 18 months, what became known as the Gonneville deposit emerged as the largest nickel sulphide discovery globally in two decades and Australia’s first significant deposit of platinum group elements, precious metals used in the catalytic converters that reduce emissions from motor vehicles.
“There are very, very few large nickel sulphide discoveries that happen, they’re sort of once in a decade, once in two decade type occurrences,” Chalice MD Alex Dorsch told Stockhead.
“Effectively we’ve got the largest ever PGE discovery in Australia by a long way. And Australia just really hasn’t had a PGE industry and obviously now Julimar is the beginnings of one.”
But Chalice shares have slid almost 19% this year to date to $7.22, lopping around $1 billion off its market cap since the resource announcement even as prices for its core commodities palladium and nickel have surged on concerns around Russian supply.
Are investors souring on the Julimar story, or are they just taking a break ahead of the next chapter of the tale?
Chalice Mining (ASX:CHN) share price today:
Platinum whale
PGE discoveries have long been a white whale for the WA mining industry, belying its status as the state’s reputation as the world’s most fertile mining jurisdiction.
Take the fanfare around the Collurabbie nickel deposit, branded Australia’s first significant PGE discovery by Western Mining Corporation and junior Falcon Minerals back in 2003.
It was heavily promoted in WMC’s corporate filings as it tried to ward off a takeover bid from global miner X-Strata.
BHP (ASX:BHP) bought WMC for $9.2 billion in 2005 but BHP had little interest and the flash in a pan discovery faded into obscurity faster than Freddy Adu.
Led by Dorsch and veteran chairman Tim Goyder, Chalice finally cracked the code with the stunning discovery hole at Julimar.
It wasn’t just the rich agglomeration of battery metals that had investors excited. The fact Julimar lay in farmland just 70km north of Perth in area not thought to be prospective for mineral wealth was a big part of the allure.
“In terms of a discovery it’s a new mineralised system, in a terrane that was previously not considered prospective,” says Royce Haese, a mining analyst at Argonaut Securities.
“So it’s a huge discovery and it does show potential for other players in the vicinity to also make discoveries. I think Chalice as first movers have the advantage, but there is further potential in the region.”
Finding the next Julimar
Australian explorers have a mixed record turning breakthroughs into genuine mineral provinces.
For every Golden Mile, there is a DeGrussa or Nova, revelations that burn bright but fail to deliver more even after millions have been splurged on exploration.
Dorsch remains positive that Chalice will be the first of many from his firm and others who have launched an assault on ground around Julimar.
“The first one in a new area typically signals that there’s many more big ones to be found,” he said.
“Immediately after the first nickel sulphide was discovered in Kambalda in 1966 over the next five years, there was a whole swathe of very large discoveries like Mount Keith, Yakabindie and Leinster.
“All of those transpired in that sort of initial five years after that Kambalda discovery. The steepest point of the creaming curve of other provinces is that first five years, so hopefully we can get there.”
Full metal alchemy
Chalice is due to release both an updated resource for Gonneville and a scoping study by the middle of this year, giving the first insight into the economic potential of the mine.
Haese’s biggest question mark over Chalice is its metallurgy, which has few analogues in the nickel sulphide industry in Australia or the PGE industry in South Africa.
“There’s no comparable peers,” he said. “So I’ve had a look at a number of the African and American PGE producers.
“I can’t get any information out of Russia, which is probably going to be the most direct comparisons, so I actually can’t estimate capital or processing operating costs.
“I don’t know what the processing route for the disseminated part of the ore body will be at this point.”
According to Dorsch, Julimar has advantages over South African PGE deposits because it is low in chrome.
The higher grade part of the resource can be processed with a simple flotation flow sheet similar to conventional nickel and copper sulphide deposits.
Value may be captured for the lower grade product by heading further downstream, something that could capture the attention of governments aiming to back critical metals supply chains.
While demand for palladium and platinum from their biggest market in motor vehicles will decline as electric vehicles replace internal combustion engines, Dorsch says their use in hydrogen fuel cells and electrolysers will give Chalice exposure to both major limbs of the green energy market.
“Batteries are already being constrained by raw material availability like lithium, nickel, cobalt, as well as other raw materials,” he said.
“So that’s going to slow the adoption of electric vehicles dramatically, which is going to keep hybrid and ICEs on the road for much longer.
“And then over the longer term view is that hydrogen becomes the most meaningful contributor to PGE demand.
“We are in a very good position because our deposit has the battery metals deposit and also has the hydrogen metals. So we are a little bit technology agnostic.”
Green light for Chalice
Gonneville may be big, but scarily it covers just 7% of the 26km long Julimar intrusion.
Chalice and analysts covering the stock think the best stuff could be sitting to the north.
While Gonneville sits on 21sqkm of farmland now owned by Chalice, the rest of the complex including the priority Hartog, Flinders and Jansz prospects, are located beneath the Julimar State Forest.
That is where the development of Julimar could get thorny.
Chalice had its conservation management plan to conduct low impact testing on track-mounted drill rigs approved by WA’s Government in December but is still waiting on the outcome of five appeals.
Dorsch partly attributes the malaise in Chalice’s share price to the delay.
He says the drilling will be crucial to truly define the significance of a discovery he says is strategically important in the context of the current geopolitical climate.
“We’ve got Russia, who are basically in control of things like class 1 nickel, certainly in control of palladium and the Western world is really unable to exert any leverage over jurisdictions like that as long as they remain in those positions of control,” he said.
“Certainly you can see the federal government has absolutely recognised the importance of critical minerals, but I think the general public probably hasn’t quite yet drawn the connection between things like decarbonising the economy and what immense requirements for raw materials there are to do that.
“Raw materials like what we found at Julimar need to be mined as quickly as possible if we’re serious about decarbonising the economy.”