Pound-for-pound, copper explorer Hammer is nailing the value proposition

The copper price has been under the hammer of late, what with the US debt ceiling saga, sluggish growth in China and the ongoing debate of whether the inflation fight will tip the world in to a full-blown recession.

The metal is down some 25% from its peak of more than $US5/lb in March 2022. But it has to be said that for the vast majority of the world’s copper producers, the current price of $US3.58/lb is a great price.

It also has to be said that all the issues mentioned above are transitory. Global decarbonisation is not, and copper is key to making it happen.

A lack of discoveries, falling grades at existing mines and slower approval processes means there is a real fear that the challenge of increasing supply to make decarbonisation possible is insurmountable.

It is why BHP reckons the stage is set for a “take-off” in the copper market from about 2025, and why Goldman Sachs has copper at $US4.80/lb in the near-term, and $US6.80/lb in the long-term.

Having said all that, copper’s fall from plus-$US4/lb prices has knocked the stuffing out of the copper stocks, with BHP also being hit by iron ore’s fall below $US100/t.

Believers in the idea that copper is just taxiing on the runway ahead of taking-off in response to decarbonisation demands can’t believe their luck as value has returned.

It goes for the producers, what’s left of them on the ASX anyway, as much as it does for the explorers. Among the juniors, it is the those with a resource already under their belt, and high leverage exploration programs ahead, that are being nibbled at by value-hunting investors.

The Mount Isa region-focussed Hammer Metals (HMX) is an example. It is now trading at 7c for a $57 million market after getting tickled a little higher on a high-grade copper hit with rare earth elements at its Hardway prospect (57m at 1% copper).

It was a nice hit and will be followed up. It goes to one of the key value drivers for the company within its Mount Isa assets – exploration success.

There are another two value drivers – its existing resource base and its exposure to regional consolidation moves and possible merger and acquisition activity.

Hammer recently upgraded its resource base to 530,000t of copper equivalent of which the Kalman deposit is the mainstay. In an industry desperately seeking additional copper units ahead of the metal’s mid-decade take-off, Kalman has street cred.

Near enough to 300,000t of copper grading about 1% is in an open-cut position, with exploration upside remaining, makes Kalman something special within the junior space.

Hammer boss Dan Thomas makes the point that Sandfire, where he previously spent 5 years on the payroll, paid $166m to acquire 340,000t of copper in Botswana – admittedly in the reserve category – when it acquired the Motheo project in 2019 (it started production this week).

He told the recent Resources Rising Stars conference on the Gold Coast that Kalman, which has been on the books in a smaller form since 2010, hasn’t been generating excitement for investors with an exploration bent.

“But in terms of value creation, it should,” he said.

Hammer is also exposed to the region’s exploration upside across a number of prospects, including its South Hope prospect across the fence line from Carnaby’s (ASX:CNB) Mount Hope project.

High-grade hits by Carnaby (35m at 4.2% copper with gold recently) have propelled Carnaby’s market cap to $192m. Meanwhile, Hammer has kicked off a drilling program at its prospects Mount Hope region prospects which sit on tenements surrounding Carnaby’s Mount Hope tenement.

“It doesn’t take a rocket scientist to see the potential there for the consolidation of the assets,” Thomas suggested.

On the broader regional consolidation and M & A activity, it is noteworthy that seven notable deals have been cut in the region in the past 18 months. It goes to the scramble for more copper units ahead of the metal’s mid-decade take-off.

Gascoyne: (ASX:GCY):

The fall in the Aussie dollar means that despite the tumble in the US dollar gold price to well below $US2000/oz, the local price is as strong as you like at $3,000/oz.

Not that it is making a difference for the gold producers and explorers stocks.

They have been hit hard in the past couple of weeks, notwithstanding the advice flying out of the investment banks that gold – and by extension gold stocks – is the place to be while the current uncertainty runs its course.

For the gold stocks, it means they are a bit like the copper stocks where there has been a return of value for the true believers.

Sometimes though a stock of any persuasion can get stuck in a tight trading range even though it has been kicking goals. It is the position that Gascoyne Gold (GCY) finds itself. No matter what it has announced on the exploration front, it stays at around 12c a share for a market cap of $105m.

It really is a bit of mystery. Possible explanations for the flat trading include a dislike by some of the royalties that made up part of its recent $50m refinancing. Or maybe it is old stock coming out every chance its gets after the dilutive refinancing.

Then there is a theory that an operation is underway to keep it flat while a takeover bid for the company gets worked up.

Any one of those reasons might be right, or maybe not.

Whatever the case, it must be frustrating stuff for Gascoyne boss Simon Lawson and the rest of the crew who have continued to pump out impressive exploration results at the 2022 Never Never gold discovery, one so good they named it twice, just like the gin of the same name.

Things got tough for the company last year from the mining of sub-1g/t gold dirt so the still-shiny new 2.5 mtpa Dalgaranga treatment plant was parked up. The discovery of Never Never next to the existing open-cut operation made the decision an easy, albeit stressful, one.

That’s because Lawson could get to work on planning a high-grade future for Dalgaranga. Drilling at Never Never has grown the resource there alone to 303,000oz grading 4.64 g/t.

It is growing too, with Gascoyne reporting this week a thick and high grade hit (29.15m at 11.09g/t) some 110m below the current mineral resource estimate boundary.

So confidence is building in Lawson’s “365” strategy over 18 months to establish a high-grade 300,000oz reserve at Never Never, a 600,000oz high-grade resource at the deposit and to deliver an initial high-grade five-year mine life.

Dalgaranga has gone belly up under different management before. The 365 strategy, underpinned by Never Never, is the long-term fix. The share price is not yet reflecting the 130,000-150,000oz per annum near-term future.

But given a continuation of a $3,000oz Aussie gold price, or thereabouts, the day it does can’t be too far off.

Much more delay in the re-rate of the stock means the takeover suggestion made above might not be over the top.

All Lawson and the team can do in the here and now is to keep pumping out thick and high-grade hits at the growing Never Never. It is the best way to break the dam wall.

Bellavista (BVR)

Bellavista (BVR) is one to watch in coming days on the strength of assay results from its Brumby base metals prospect in the emerging Edmund Basin to the south-west of the iron ore town of Newman.

Floated last year with the backing of industry notables Steve Parsons (Bellevue/(BGL) and Mark Clark (Capricorn/CMM), Bellavista’s initial wide-spaced drilling program last year confirmed what was expected - Brumby is a seriously large scale but modest grade (2-2.5% zinc equivalent).

This year’s drilling, still widespread because of the scale of the thing, is all about finding some higher grade spikes.

No cigar just yet as there have been no assays reported from the first holes in what is a 7-10 hole program. But in a recent presentation, the company did mention that in the third hole, the spot pXRF readings in the field pinged up to 7.53% zinc.

It also cautioned that the reading should not be considered a proxy or substitute for laboratory analysis. Those that spotted the 7.53% reference have tickled the stock up to 19c, nevertheless. At that price, the company’s market cap remains a modest $12.6m.