Investors re-discover appetite for exploration success

The drill bit is again setting share prices alight - and with good reason, according to new research by a veteran minerals economist. Centaurus’ rise from $24m junior to $450m nickel developer is a case in point. And this week, shares in Swedish silver and base metals explorer Alicanto soared as it combined drilling success with a touch of M&A.

There has been a noticeable increase in the market’s response to positive exploration results, and it is not just in the lithium space either.

The switch over to a “risk-on” view of exploration follows a good six months or so of exploration results being ignored while the broader market and commodity prices found their found feet.

The other factor that never went away is that the exploration drill bit can result in serious wealth creation regardless of the market conditions of the day.

The major miners won’t like to hear it but the juniors have also been outshining them with the drill bit. They are providing more bang-for-your buck when it comes to exploration.

That came through in research work by the veteran minerals economist at the consultancy group

MinEx Consulting, Richard Schodde.

The former WMC and BHP industry watcher crunched exploration numbers for a presentation to the IMARC conference in Sydney last week, with the often-maligned junior space - yes there are life-styler juniors out there – doing nicely across a range of performance measures.

In terms of discovery, most of the deposits are now being found by the juniors. Over the 2012-21 period they accounted for 75% of all discoveries by number.

But as Schodde pointed out, most of those discoveries were on the smallish side of things. Still, that doesn’t matter much if the discovery is by a company coming off a low market cap base as is the case with the juniors.

The major miners of course are focussed on discovering Tier-1 deposits which are more difficult to find.

However, even after adjusting for the different exploration focus, Schodde found that the juniors were in fact punching above their weight as they captured 64% of the $US32 billion-plus value created through exploration over 2012-2021.

In terms of the Value-to-Cost Ratio (i.e. Bang-per-Buck), Schodde estimates that over the past decade the Australian exploration sector generated $1.38 of value per every dollar spent, meaning there was more value created than destroyed.

The juniors did particularly well, creating $2.10 of value compared with the major miners, which could manage only 58c per dollar spent.

Centaurus:

Talking about juniors creating value with the drill bit, Centaurus (CTM) is a prime example.

Back in August 2019 it was mentioned here that the company’s pick up from Brazil’s Vale of the Jaguar nickel project had to go down as the best deal to be announced during that year’s annual gathering of the mining industry at Diggers & Dealers in Kalgoorlie.

Centaurus’ market cap at the time was $24 million. Its market cap now stands at $450m, with its shares trading at $1.05, which compares with analyst target prices starting from $1.80 up to more than $2.50.

The reason for the wealth creation has been the emergence of Jaguar as one of the biggest nickel sulphide deposits held by an ASX company, with the latest resource update carrying the shallow resource to 108Mt grading 0.87% nickel for 938,500t of contained metal.

Only BHP and its unwilling $8.3 billion takeover target OZ Minerals (OZL) have bigger deposits of the metal on the ASX.

BHP for one sees nickel as a metal of the future, with the world on its way to needing four times current consumption because of the electric vehicle revolution.

The quality of Jaguar’s global resource estimate has also improved, with more than 730,000t of nickel now sitting in the higher confidence measured and indicated category.

So it is more than big enough to support the company’s planning to become a 20 year-plus producer of 20,000tpa of value-added nickel-in-sulphate and mixed sulphide precipitate for the battery market.

Because of ready access to Brazil’s hydro-power, Jaguar will be a “green” producer compared with the rest of the industry, adding a strategically important element to the project’s scale and long-life credentials.

A final investment decision on the project is due in the fourth quarter of next year.

Before that point is reached, there is every chance Centaurus could well be partnered at Jaguar by one of the big auto groups or battery markets because one thing is certain - Jaguar and a whole lot of other nickel developments are needed if there is any chance of the supply challenge BHP and others have highlighted being met.

Alicanto:

Back to the opening premise that investors are more responsive to exploration news than they have been for the last six months, particularly in the small cap juniors.

Alicanto (AQI) is an example, even if was off 18% on Thursday to 5.3c for a market cap of $23m. The fall was some profit taking after the stock ran up from 3.8c a week before, making for a lithium-like one-week gain of 40%.

The run up was in response to the first drill hole at its Skyttgruvan-Naverberg prospect within its Greater Falun project area in mining-friendly Sweden returning visual zinc-copper-silver-lead over a gross interval of 43m. Assays are pending but there was enough encouragement to get cracking with a second hole.

Importantly, the mineralisation is hosted within a limestone sequence which is overlain by a basalt formation – giving it a stratigraphic position analogous to the nearby historic Falun mine which operated on and off for a thousand years before its closure in 1992 because of the depressed prices at the time.

Historic production at Falun was 28Mt at 4% copper, 4g/t gold, 5% zinc, 2% lead and 35g/t silver. There has been no modern day exploration since.

When Alicanto reported the result from Skyttgruvan-Naverberg, it did not own the Falun mine, all of 3.5km away. But it does now, with the low-cost acquisition announced a couple of days later.

Quite neat when it is all said and done as the Falun tenements enhance the overall exploration appeal of what really is now the Greater Falun project area which Alicanto believes has major mining camp potential.

No need to be hiring a blonde workforce just yet, but when added to Alicanto’s existing resource at another historic Swedish mine (Sala: 9.7Mt of 4.5% zinc equivalent), the building blocks for a long-term presence in the country – as far away from the crowded Aussie mining scene as you can get – are now in place.