Azure’s Pilbara lithium find making money Andover fist

Fate is a funny thing. Just ask Azure Minerals’ (AZS) managing director and veteran geologist Tony Rovira about the role COVID played in the fortunes of the explorer he floated way back in December 2003.

Azure started out as nickel explorer, with a bag of nickel exploration interests picked up from Ron Manners’ long-gone Croesus Mining.

But not much came from the nickel hunt, so it wasn’t long before Rovira took Azure off to Mexico to hunt for silver.

In the subsequent years there was a degree of success with the Mexican excursion.

And because of Rovira’s role, along with the late geologist Terry Grammer, in finding the Cosmos nickel deposit in 1997 for Kerry Harmanis’ Jubilee Mines (acquired by Xstrata in 2007 for $3.1 billion), Azure was assured of a good following.

But when COVID became full-blown in March 2020, Rovira pulled up stumps in Mexico. He needed to inject some WA projects into Azure so he called an old friend, the legendary “prospector” Mark Creasy.

Creasy suggested his Andover nickel project up near Roebourne where the pub serves a cold beer if you are game.

The standard Creasy deal was struck in October 2020 – 20% equity in Azure and 40% of Andover for Creasy going forward, with Azure carrying the project and owning 60%.

Azure enjoyed success with the drill bit to the point where it now has a resource of some 65,000t of nickel equivalent.

That was good enough to rate Azure as a $100m company in mid-February this year when it was trading at 30c. But as mentioned here at the time, things were stirring on the lithium front at Andover for Azure.

It was becoming clear that among the nickel deposits there was also a giant swarm of pegmatites, with initial sampling work by Azure having confirmed they were of the lithium-bearing spodumene type.

No less than Chile’s lithium king SQM recognised that Azure could be on to something big and ahead of any drilling by Azure, struck a deal to invest $20m for 20% of the company, reducing Creasy to a 13.4% interest and leaving the Azure/Creasy 60:40 joint venture untouched.

Drilling by Azure since has confirmed that Andover is a seriously big discovery, with some suggesting it could well be as big as Pilbara’s (ASX: PLS) Pilgangoora, Liontown’s Kathleen Valley, or the Wesfarmers/SQM Mt Holland deposit, if not bigger.

Azure’s market cap has responded by growing from the $100m back in mid-February to $642m this week ($1.65 a share).

So following on from his Cosmos success all those years ago, Rovira has kicked another goal. So too has Creasy.

Creasy’s 13.4 stake in Azure is now worth $86m and the imputed value of his 40% carried stake in Andover to a decision to mine is north of $428m, making for $514m all-up.

Creasy is best known for previously striking it rich by vending exploration properties that went on to become the Nova nickel-nickel deposit and the Bronzewing gold mine, among other things.

According to analysts following the stock, Azure’s seven-fold value increase since mid-February has further to go. Bell Potter has a $2 share price target on Azure, and Canaccord is at $2.25 a share.

Canaccord’s particular bullishness comes through loud and clear in a research note dated June 27.

“Azure has only scratched the surface, having drilled a 400m strike zone of pegmatites in a field of over 700 mapped pegmatites within a zone that stretches 9km x 5km. Suffice to say, the scale potential is massive, in our view,” Canaccord said.

“Our interpretation implies a mine inventory of 65-75Mt from the 400m strike already drilled. Given this 400m is part of a 2.2km long pegmatite trend, we view a resource in the region of 100Mt as a realistic initial goal for AP0011, AP0012 and the neighbouring pegmatites, and use this as the basis for our EV/ Resource multiple valuation.

“This 100Mt does not include the exciting opportunities Azure has further afield at Andover, including Cuprum Via. For now, we centre our valuation on 100Mt and await further success but concede that 200Mt is not inconceivable for Andover over time.”

Sunstone:

Malcolm Norris’ Ecuadorian gold-copper explorer Sunstone (ASX: STM) was mentioned here back on April 23 when it was trading at 3.1c for a market cap of $82m.

It has since fallen to 2.3c for a market cap of $65m which is a bit of a surprise given that after a $12m capital raise in May at 2.6c, it is no longer come-raise.

More than that though, the company’s exploration at its Bramaderos project in the south of the country, and at El Palmar in the north, is gathering momentum towards the target of defining Tier 1 development opportunities.

Recent results from El Palmar have indicated the T3 prospect is a large gold-copper system at depth in a part of the world known for such systems.

And then there is the excitement down south around the Limon gold-silver epithermal target, 2.3 km north-east of the Brama-Alba porphyry deposit (2.7m oz gold equivalent with an exploration target for an additional 3.3m-8.6Moz of gold equivalent).

Early results from Limon raised the potential for the epithermal discovery (176.7m at 1.1g/t gold equivalent) to host higher-grade material from surface than found in the Brama-Alba porphyries, possibly enough to make it a starter-pit development for the broader Bramaderos project.

We could be about to find out if Limon’s promise on that front continues, with Norris saying on an June 23 podcast on the Stockhead website that 3 or 4 Limon holes were being assayed, and that they would be packaged together for release “late in the month, or early July”.

Hot Chili

Talking about things Latin American, it is interesting to note that this market is yet to get on board with Hot Chili (ASX: HCH) and its Costa Fuego copper-gold project in the coastal ranges of Chile’s Atacama region.

But others have been. First there was Glencore, which took up a 9% stake in 2002. Now the ever-sharp Osisko Gold Royalties has pumped $US15m into Hot Chili in return from a 1.12% net smelter return on future production.

For a company trading at $1.06 for a market cap of $126m, the 1.12% royalty for $US15m has clear see-through valuation implications, again something this market has not picked up on yet.

That’s kind of surprising given this market is looking for copper-gold exposure now that OZ Minerals has been absorbed by BHP for $9.6 billion (OZ was good for 120,000t of copper and 220,000oz of gold in 2022, with growth in copper and nickel to come).

Then again, maybe it’s not surprising given Hot Chili is not yet a producer. But as the recent arrival of Osisko suggests, it is well on its way to becoming a producer, something borne out in this week’s release alongside the Osisko announcement of a scoping study into Costa Fuego’s development.

The study – in the form of a Canadian-style preliminary economic assessment – covered a project with a pre-development cost of around $US1 billion producing 95,000tpa of copper and 50,000oz a year of gold.

Assuming $US3.85/lb copper and $US1,750 gold, all-in sustaining costs were put at $US1.74/lb copper net of by-product credits (OZ’s mid-point across its two South Australia mines was $US1.74 in 2022), and the base case post-tax net present value (8%) was put at $US1.1 billion, with every US10c increase in the copper adding $US100m to post-tax NPV.

So if Glencore, Osisko and now the PEA (a prefeasibility study is due in the second half of 2024) have failed to fire up for Hot Chili in its home market, maybe it is down to the copper price to get things moving.

And on that front, there is broad agreement that a yawning supply gap will start to open up in the copper market around 2025 due to decarbonisation and a bunch of other reasons. Copper prices could put on 50% according to some big name investment banks.

And let’s not forget, that sort of outlook is why BHP acquired OZ in the first place.

Hot Chili’s Costa Fuego could produce first metal a couple of years after the 2025 tipping point in the copper market. So while it has been a decade long effort by the company in Chile, it could be that its timing for first production is sweet as could be hoped.