Chalice Mining (ASX:CHN) has nosedived to a year-low on a massive sell down of shares on the Australian Securities Exchange (ASX) as questionable metrics and price expectations emerge from its newly released Gonneville Nickel-Copper-PGE Project Scoping Study.
Shares in the company were decimated by more than 25% to $3.77 as of 4pm AWST today (30 August 2023) after investors exited amid scepticism over the long-awaited Scoping Study’s metal price assumptions, recovery rates, and development bill.
The now $1.95 billion market capitalisation company, which had traded close to $8 a share back in April, has promised a two-year payback on the mine costing between $1.6 billion and $2.3 billion.
The 100% owned Gonneville Nickel-Copper-Platinum Group Element Project is located on Chalice-owned farmland some 70km north-east of Perth in Western Australia and is regarded as one of Australia’s best critical minerals discoveries for its platinum group elements (PGEs), nickel, and copper.
However, eyebrows and concerns alike were raised on Chalice basing its economic forecasts on commodity prices well above current prices.
Under the Scoping Study and listed on page 12 of yesterday’s release, Chalice assumes prices for palladium – which is expected to provide more than half of the mine’s revenue – would fetch $US2,000 an ounce over the life of the mine.
The palladium price has been ticking at just under $US1,220 an ounce – almost half of the company’s assumption – and has not reached $2,000 for about a year.
Chalice also assumes a nickel price of $US24,000 a tonne over the life of the mine, which considering the metal would contribute 24% of revenue from the mine would be quite lucrative. However, the current price of nickel is just under $US21,000 a tonne.
The Scoping Study also assumes the copper price will be $US11,000 a tonne during the mine’s life, which is considerably higher than the $US8,300 a tonne the metals have been hovering around.
A footnote discloses that commodity prices used in the open pit optimisation are different – and indeed they are. For the 30Mtpa case, Chalice assumes the price of nickel to be US$21,500, copper US$9,000, and palladium $US1,600.
AMC Consultants were engaged to conduct the analysis of open pit mining for the Scoping Study.
Chalice says: “These prices influence mine design and economic cut-off and are based on Chalice’s understanding of the supply curve for each metal and the assumptions underlying Russian and South African reported Mineral Reserves.
It is noted that there is a high degree of cost inflation across the mining industry and significant uncertainty around demand forecasts, particularly in relation to decarbonisation and western critical minerals / supply chain policies. In addition, the mine design price assumption is lower than Chalice’s long-term price forecasts to reflect the cyclical nature of commodity prices, ensuring profitability of the mine through-the-cycle. As a result, Chalice has adopted a more conservative 15Mtpa Case as well as a 30Mtpa case.”
The company reports that to achieve the range of outcomes indicated in the Scoping Study, it is estimated that pre-production funding of about $1.6 billion for a 15Mtpa case and $2.3 billion for the 30Mtpa case may be required.
The Scoping Study considers a 15Mtpa case with initial capex for a 7.5Mtpa processing throughput and expansion capex in year 6 to increase throughput to 15Mtpa. The 30Mtpa case includes initial capex for a 15Mtpa processing throughput and expansion capex in year 6 to increase throughput to 30Mtpa.
In March 2023, Chalice announced an updated Mineral Resource Estimate for Gonneville of 560Mt @ 0.54% NiEq or 1.7g/t PdEq, for a contained 16Moz of 3E PGE, 860,000t Ni, 520,000t Cu and 83,000t Co.
In late 2021, the company commenced studies to assess the viability of a future mine development at Gonneville. The study has focused on the assessment of 2 initial development cases for the resource which will be further advanced along with other potential cases in the next study phase – the Prefeasibility Study (PFS).
The study is based on the Gonneville Resource only and does not include extensions to mineralised zones which have already been defined through step-out drilling.
It is assumed that only nickel, copper, cobalt, palladium, platinum, and gold will be payable in the offtake products. However, Chalice says the deposit does contain minor amounts of rhodium, iridium and silver and the recovery and potential payability of these metals will be further investigated in the PFS.
Write to Adam Orlando at Mining.com.au
Chalice Mining
