Investors are always looking for that perfect investment. And as we all know well, all that glitters do not always turn out to be perfect investment. This has been the bug bear of my investments and I am sure many other share this sentiment.
Investors in the Australian Stock Exchange (ASX) love spotting a company with the perfect copper story.
I have a copper story to share. Several years ago, I remember stepping off a plane and receiving a message from a friend telling me that Stavely Minerals Limited (ASX: SVY) share prices have taken off.
On 26th September 2019, Stavely made an announcement - Outstanding Shallow High-Grade Copper-Gold Discovery in First Diamond Hole at Ultramafic Contact Fault - and the shares soared.
Figure 1: The 3 year share price chart for Stavely Minerals Limited (Source: Commsec)
After reading an earlier announcement on1st August 2019 - Latest Drill Assays Confirm Southerly Plunge of Copper-Gold Mineralised North-South Structure, I told my friend that this is a serious project and that we are looking at a discovery hole.
I liked the Stavely story and was trying to persuade management to do a Coffee with Samso, but they were reluctant. Here is where I can add another entry to the list of "I told You So" stories. Such is life. But onward we must go.
When you look at this story, as good as the project is, it's not going to be producing copper plates in the near future. In fact, this story is not in the same space.
Which leads me to a different copper story, that of Cyprium Metals Limited (ASX: CYM) where they are talking about producing copper plates in 2023. They were talking 2022 but with regulatory delays, and now they are talking about 2023.
Cyprium Metals Limited (ASX:CYM)
When I first looked at the Cyprium story, it was all about the exploration story. The story was centred on the Nanadie Well and the Hollandaire project. These two projects are categorised in the Murchison Copper Gold Project. When Barry Cahill agreed to do a Coffee with Samso, I started to do research earnestly.
On the day of the recording, the company announced the acquisition of the Nifty Copper Mine (The Nifty Copper Mine: A Forgotten Gem in the Paterson Range). I only found out about that an hour before the recording - A New Copper Producer - An Overnight Success... - Cyprium Metals Limited (ASX: CYM) - Episode 69 - which was pretty exciting as I was getting to know about the story not unlike reality TV style. It was definitely fresh off the press and piping hot.
Figure 2: Location of Cyprium Metals projects. (Source: Cyprium Metals Limited)
The acquisition of Nifty by Cyprium is unique in that Barry Cahill and his team have done this in Indonesia. This is not a new topic for Barry and his team. The key is the heap leach process (Heap Leaching: Is it something that could be an alternative to conventional gold extraction?) and if you understand this process, you will understand why we are excited.
Figure 3: Nifty Site Layout and Active Areas (Source: Cyprium Metals Limited)
Heap leaching is a well known process used by the world's largest porphyry mines to extract low grade but large volumes of copper and gold ores. They treat millions of tonnes of ore which are the major suppliers of copper and gold to the world stage. According to Barry, their IP is the key and when they are in production, it will be at its element.
Barry shared his thoughts with us when he spoke to us in his last Coffee with Samso - Why Cyprium Metals Limited (ASX: CYM) is a Different Copper Producer.
Nifty Copper Mine
According to Cyprium's website, the Nifty Copper Mine is located on the western edge of the Great Sandy Desert in the north-eastern Pilbara region of Western Australia, approximately 350 km southeast of Port Hedland.
Nifty was initially discovered by WMC in 1981 and commenced operation in 1993 as an open pit oxide copper mine with processing via heap leaching and solvent extraction-electrowinning (“SX/EW”) recovery to produce copper cathodes. From 2006, it transitioned to an underground sulphide mine with processing via standard flotation to produce a copper concentrate at rates of over 50,000 tonnes of contained copper per year. Between commencement of the oxide operation and 26 November 2019, when the mine was placed onto care and maintenance (“C&M”), Nifty has produced more than 700,000 tonnes of copper metal.
Cyprium acquired 100% of the Nifty Copper Mine in March 2021, as part of a larger transaction with Metals X (CYM ASX Announcement – Transformational Acquisition of Highly Attractive Copper Portfolio, 10 February 2021).
Table 1: Nifty Mineral Resource Estimate at 17 November 2021. (Source: Cyprium Metals Limited)
According to Table 1 from the Cyprium latest presentation, there is no lack of ore. The business is clear and there is no doubt that they have ore to discover and treat.
There are ample resources beneath the current pit and the potential of greater resources is also expected. It is yet to be established as a "Sure Thing" but as you can see in Figure 4 below, it is promising.
Figure 4: The potential of the Nifty Copper Mine. (Source: Cyprium Metals Limited)
Geologically, the Cyprium story is in good hands. There is no creative geology required. What management needs to do is prove that their IP works and they are able to extract the Copper from the mineral.
What's the problem with Cyprium Metals Limited ?
For me, as a shareholder, I think there have been many occasions where I have wondered about the quality of my investment. It's that "What were you thinking.." moment. I am sure many others have second-guessed their decisions. Not something you want to spend time in bed tossing and turning over.
With Cyprium, when the announcement came, I thought that this was another story that will surely run without me having a chance to get on board early. However, the delay and the lack lustre nature of the market towards the stock gave me a lot of time to assess the investment.
No Love from the Market
I am a shareholder of the Hot Chili Limited (ASX: HCH) story as well and that seems to be travelling in the same manner as Cyprium. HCH has a great story in Chile and they are also in the process of completing a dual listing with the Toronto Stock Exchange. It is almost a Tier 1 Copper-Gold project but there is no love either from the markets.
With the common narrative that the demand of copper is going to exceed supply, the market for both HCH (Market Capitalisation of AUD$182M) and CYM (Market Capitalisation of AUD$90.3M) is not good.
There seems to be some sort of disconnect between what the metal price is indicating, what the narrative on demand is being advertised and the love factor for both these copper stocks. As many great investors in the market profess, one should always take notice when there is a disequilibrium between price and market expectation.
Let's look at some glaring topics of conversations:
In my opinion, CYM is closer to production than HCH but their market capitalisation is half of HCH.
The narrative in the market is that copper is going to have a serious supply issue. It is common knowledge that the price of copper is going to feel some upward pressure.
There aren't too many copper projects that are at the near production stage. For CYM, looking at the size of the company, there aren't too may peers in the Australian Stock Exchange (ASX).
CYM has been telling the market that they will be in production within 18 months.
Infrastructure for the impending production story is in place.
Drilling for resource is building up and metallurgical studies are well underway.
Exploration work in Nifty and the other projects have shown good prospectivity.
As investors, we are all aware that all investments have the potential to become lemons. Sure we all want our investments to turn into a nice refreshing lemonade, but the reality is no matter how good a project is, it's just as likely to go in the opposite direction. A seasoned investor will always share this thought. It's called being real. If they don't, then you know what they are saying smells like a lie well dressed up.
Let's Discuss
To those readers who are still interested in this Insight, the copper space and the Cyprium space are equally frustrating. Frustrating in terms of direction and the future prospectivity.
Figure 5: The 3 year chart for Cyprium Metals Limited (Source; Commsec).
Firstly, let's look at Figure 5 and Figure 6. You can see the disparity on the trend of the chart. The comparison can be argued to be a difference of scale but let me draw your attention to the sentiment of each chart. The CYM price chart in Figure 5 gives me a sense of non-excitement whereas the one for the copper price gives me a great sense of optimism.
Figure 6: The 5 year price chart for Copper. (Source: Trading Economics)
One has to remember that at this current price, any producer would be making lots of money. Hence, for a producer like CYM (a potential producer), with their lower cost for production, they would definitely be making a great profit.
If the narrative of rising copper price is true, the CYMs of the copper space would be laughing all the way to the bank as they say.
Can the IP break Chalcopyrite?
One of the biggest issues with the Cyprium story is centred on the performance of the IP behind the extraction of copper via the Heap Leaching process. Barry tells me this is not an issue and you can hear this from the man himself in the last Coffee with Samso (Why Cyprium Metals Limited (ASX: CYM) Is A Different Copper Producer - Episode 108).
This will be a game changer for this story so I am sure management had put a lot of thought into this before coming out and telling the public. There is a lot of mistrust or misunderstanding on the potential success of the IP. Typically, management is frustrated by this thought in the market but as they say, that is what you get when you sit on the big chair.
Personally, from my own perspective as a shareholder, this is a good risk for me. I am confident of the management and if or when they make it happen, a copper producer at a low market capitalisation of less than AUD$100M is cheap.
Exploration Potential
As I mentioned very early on in this Insight, I was very interested in the Nanadie Well and Cue projects (Figure 7) before realising that the bigger Nifty project would be in play. The recent announcement on 22nd November 2021 - Significant Copper Intersections from Nanadie Well Drilling - gives an indication of why I am interested in the Nanadie Well project.
The potential of this project developing into a stand alone play increases after each announcement. It is not showing signs of an instant player, but there are definitely plenty of good lengthy intercepts to give optimism.
One may question if there is any real depth to the mineralisation at Nanadie well. On 24th June 2021, Cyprium released the following - Nanadie Well 232m Sulphide Ore Grade Copper Intercept from 109m.
From a geological point of view, this gives confidence that you are in a good system. I try to look for a cross-section but even if this is down dip, it's good to know that it does go for a good distance.
Figure 7: Nanadie Well and Cue project location. (Source: Cyprium Metals Limited)
The Nifty regional exploration potential is also one that you cannot discount. In many of these good projects, the market (with good reasons) tend to not value what the exploration can value add to the story.
In Figure 8, one can see that there is a large regional exploration play that has IGO Limited (ASX: IGO) earning into the state of play. IGO is a big brother and having them wanting a piece of the action is a good indication that you are in the right address.
Figure 8: The Patterson Project with includes the Nifty Mine. (Source: Cyprium Metals Limited).
The package that IGO is earning into is large and it dwarfs the Nifty Operations and the Maroochydore prospect. CYM has secured itself a life long position by having the Nifty operations as well as potentially taking stock of what Maroochydore would produce.
Maroochydore Deposit
The Maroochydore deposit is approximately 85km southeast of Nifty (Figure8).
Maroochydore was initially discovered by Esso Australia Ltd in 1984. Since discovery, Maroochydore has had numerous owners and JV partners that have collectively drilled out the Resource and performed various metallurgical testwork regimes and studies on production scenarios. The primary copper sulphide mineralisation remains open along-strike and down-dip.
Cyprium acquired 100% of the Maroochydore Copper Project in March 2021, as part of a larger transaction with Metals X (CYM ASX Announcement – Transformational Acquisition of Highly Attractive Copper Portfolio, 10 February 2021).
Table 2: The Maroochydore Mineral Resource Estimate at 31 March 2016. (Source: Cyprium Metals Limited)
The Maroochydore deposit is not in the same league as Nifty (Table 2) in terms of a resource but it's definitely not a dry well. The problem for Cyprium is capital allocation and as much as it's a good problem to have, it's going to make management work hard.
Conclusions
It looks like this Insight is starting to take on the length more befitting of an e-book now. My intention when I started out writing this Insight was to highlight the things I like about the copper story as a shareholder. Investment stories are not easy to navigate and there are many points to consider.
As many great investors have always pointed out, patience is the greatest asset one must have in the world of investment. This is closely followed by having a clear understanding of the facts, which one must not mistake as a guarantee for success either. Having clarity is how you start mounting the building blocks of your investment.
I remember speaking to Rick Rule in my last Coffee with Samso and he shares about one of his greatest transactions - A Real Example on The Buffett Test - Real value Investment - Invest Smart Series - Pt 3 . Practising this kind of conviction and patience is not an easy feat but when you watch and listen to those who are wiser (as Rick Rule said, it's not that he is smarter, it's because he has seen more ), they all adhere to this golden rule of doing Research, Understanding the business and having Patience.
The Case for Cyprium Metals
To me, Cyprium has some very compelling facts which support the theory of production in 2023. If they achieve the production stage, then surely the market capitalisation of less than AUD$100M would appreciate substantially. Existing resources for mining look to be in place, exploration for the future is looking bright, and satellite projects such as Nanadie Well are well placed.
Currently, the market price looks enticing as it is well below the placement to the smart money. I always look at this in terms of retail is supposedly not as smart as we think, and investors like me, the even smaller fish, we are even lower down on the food chain. Hence, if I can get it at lower pricing, that is always a good thing.
I hope this Insight can be a step for your DYOR (Do Your Own Research) and check with your financial advisers if this is something suitable for your portfolio.
Disclaimer
The information or opinions provided herein do not constitute investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not take into consideration, nor have any regard to your specific investment objectives, financial situation, risk profile, tax position and particular, or unique needs and constraints. Read full Disclaimer.
留言