This article is a sponsored feature from Mining.com.au partner Kincora Copper Limited. It is not financial advice. Talk to a registered financial expert before making investment decisions.
It’s perhaps a sign of our time that copper is never out of the news for long. Indeed, both uranium and gold have had their moments in 2024, but it’s copper that remains the undefeated headline king.
“Copper has a set of unique characteristics that make it THE bullish energy transition and AI trade within the commodity complex,” Citi analysts, led by global head of commodities Maximilian Layton, wrote in a note last month.
Having recently declared that “copper’s time is now”, Goldman Sachs is similarly bullish. After prices hit an 11-month high of US$9,000 per tonne in mid-March, the New York-based firm said it expects the trend to continue, reaching US$10,000 per tonne by the end of this year before leaping to US$12,000 in 2025.
The sentiment is proving hard to ignore. A report at the end of March by Reuters found India — where mining accounts for just 2% of GDP, compared to Australia’s 15% — is looking to send two delegations to Chile this month, with a mandate to hunt down viable copper resources.
“We are interested in buying assets. We are trying to facilitate private and government-owned companies to acquire assets in other countries as well,” a government source said.
But the hype exists in what many view as a challenging equity market for explorers. According to the Australian Bureau of Statistics, Australia’s resources companies spent 7.3% more on drilling in the December quarter of 2023 compared to the year before. That increase comes even as the amount of drilling completed fell almost 6.6%.
It begs the question: how does a junior explorer navigate an environment of rising costs without either bankrupting itself or diluting investor shareholdings with an endless string of capital raises?
Sam Spring, President and CEO of Kincora Copper (ASX:KCC), believes he has an answer.
An elegant solution
Headquartered in Vancouver, Canada, and dual-listed on the ASX and TSX Venture exchanges, Kincora owns an extensive package of tenements in New South Wales’ Macquarie Arc. They include the Nyngan, Mulla, and Nevertire properties — which Kincora refers to as its Northern Junee-Narromine Belt Project — as well as the Cundumbul, Trundle, Condobolin, Fairholme, and Jemalong properties, which are now 100% owned following a deal with RareX (ASX:REE).
More recently, in February, Kincora pegged the Wongarbon Project, making it one of the most significant landholders in the central NSW region.
The challenge, of course, is that effectively exploring such an expansive landholding requires a significant amount of work.
“We’ve got 26 targets that we’ve identified in New South Wales,” Spring tells Mining.com.au.
“There’s over 30,000m of drilling to drill those targets properly. In this market, how do you do it? The dilution at the listed company level is prohibitive.”
The elegant solution, in a nutshell, is to get someone else to foot the bill. And it’s one that has in recent years proven increasingly popular.
In early March this year, Magmatic Resources (ASX:MAG) — another porphyry player in central NSW — signed a farm-in and joint venture agreement for its Myall Project with Fortescue (ASX:FMG) subsidiary FMG Resources. According to the terms of the deal, FMG Resources will, over a six-year period, spend a total of $14 million on exploration activities at Myall to earn a 75% stake in the project.
The partnership was announced in parallel with a separate placement, under which Fortescue spent $3.71 million to acquire a 19.9% stake in Magmatic, providing the company with additional funds to carry out exploration at its Wellington North and Parkes projects in the same region.
In the month since the Fortescue deal hit the ASX, Magmatic’s share price has soared more than 80%.
It’s an extension of the flurry of M&A activity we saw in NSW in 2023. That included AngloGold Ashanti’s (NYSE:AU) earn-in deal with Inflection Resources (CSE:AUCU) in June, Evolution Mining’s (ASX:EVN) purchase of an 80% stake in the Northparkes Mine in December, Metals Acquisition’s (ASX:MAC) $1.6 billion purchase of the CSA Mine, also in June, and of course Newmont’s (ASX:NEM) $26.2 billion acquisition of Newcrest Mining in November — not to mention a substantial string of smaller deals.
For Spring and the rest of the Kincora team, the sustained M&A action provides a good deal of confidence.
“We’re in pretty advanced conversations with potential asset-level partners,” Spring says.
In addition to such agreements representing a substantial technical endorsement, “it means that you hopefully provide an attractive scenario for investors where you have good results funded by a mid-tier or a major — a perceived ‘smarter’ group — and you get the benefit of that without the dilution at the listed shareholder level.”
But where to start?
When it comes to those “pretty advanced conversations”, Spring is referring to Kincora’s Northern Junee-Narromine Belt Project — the Nyngan, Mulla, and Nevertire properties — where full ownership has been in place the longest.
“We grabbed Nyngan, Nevertire, and Mulla just when Alkane’s (ASX:ALK) discovery at Boda happened, and then there was a big land grab. When we were pegging this, everything to the north, the south, and to the east was open. To the west, you go off the arc, and we got what we thought was the best ground and enough,” Spring explains.
But the Northern Junee-Narromine Belt Project is an early-stage package, with only two holes drilled across the properties by Kincora to date. It is, however, what Spring calls a “district scale position” in what he believes could be the largest intrusive complex in the Macquarie Arc.
“It’s something we’ve owned 100% of for a while, so we’ve been able to advance those conversations in a quicker, more efficient way. But also, it’s early-stage,” Spring adds.
“We’ve been trying to incrementally build our value, ideally looking to do deals with majors for what the market would perceive as our non-core assets. We want to try and get a better currency, and then look to do deals at Trundle and Fairholme — which are really more of our flagships — once we’ve created and demonstrated some value for some of the earlier-stage projects.”
The rest of the properties more or less sit as their own group, with the exception of Trundle, which is more of a standalone asset, and Cundumbul, which is due for a workover by Kincora’s exploration partner EARTH AI.
“It’s an interesting business model, we call it one that we’re aligned on. EARTH only gets something out of that expenditure if they make a new technical discovery,” Spring says.
“If they deliver a qualifying interval, which is a technical discovery or a commercial discovery — depending on the grade — then they get a royalty. So they’ve used their AI machine learning technology to refine areas of interest within that licence. They’ve gone out and walked those areas of interest, ground-truthed that model to make sure the AI is making sense. And they’ve identified three holes that they’re planning to drill, and that’ll be the first drilling program that kicks off.”
EARTH AI — which promises to identify “untapped critical metal deposits at half the cost in a fraction of the time” — has in recent months been making waves in Australia’s junior exploration sphere, having most recently discovered high-grade lead in rock samples at Tivan’s (ASX:TVN) Sandover Project in the Northern Territory at the start of March.
The month before, EARTH AI delivered a new magmatic PGE-nickel-copper discovery at Legacy Minerals’ (ASX:LGM) Fontenoy Project — the first known discovery, according to Legacy, of such mineralisation in NSW’s Lachlan Fold Belt.
Last, but by no means least, Kincora’s most recent project Wongarbon has come to be a source of some excitement.
“It’s a project our technical director, John Holliday, has liked since 1996. He pegged that for Newcrest back in ’96, had just started doing some work on it, and then they found Cadia Far East, which is now Cadia East, where they’re mining,” Spring explains.
“Pretty much straight after Cadia Far East, they discovered Ridgeway. So you can understand why Newcrest was focused on Cadia at that stage, and Wongarbon just got parked.
“There was a large funding group that was close to doing a deal on that project last year, and had done some new work on it. That junior ran out of money, they dropped the ground, we picked it up and just thought this is a real standout target. It sits in the right structural setting where you see these big intrusive systems in this part of the world and other porphyry belts that have a transverse structure that, effectively, is the favourite conduit for these mineral systems to form.”
In the end, and as rousing as Kincora’s NSW portfolio seems to be, one of the key factors in the success of Spring’s strategy is time — progressing the conversations already underway through their natural evolution, to the point that things start to take off.
“Given the markets changed, we’re trying to change our funding model to advance this project portfolio, because what we see is a number of really quite compelling drill programs,” Spring says.
“And that’s the stage where the industry creates the greatest amount of value. But how do you fund that in this market?”
The Mongolia factor
There is, perhaps unsurprisingly, a second option in play. In addition to the properties in NSW, Kincora holds the more advanced Bronze Fox Copper-Gold Porphyry Project — which hosts a JORC-compliant resource and exploration target — as well as the Tourmaline Hills exploration licence and the White Pearl field camp.
In June 2023, Kincora announced — following “several unsolicited enquiries from corporate and other entities” — an externally-led strategic review of the Mongolian assets with aim of maximising shareholder value. That review process concluded with what Kincora described in its September 2023 quarterly report as “a confidential and incomplete offer that includes the receipt of a non-refundable deposit to enable final due diligence and definitive legal agreements.”
The offer contemplated a part-cash, part-scrip divestment of the Mongolia projects, providing both exposure to future developments in the country and additional capital with which to advance the NSW portfolio.
“What that led to was a binding offer agreement that we received last year with a cash deposit that was non-refundable,” Spring says.
But, alas, the deal fell through. Kincora is now looking to defend its rights related to that transaction, “and put the Mongolia assets back on the market with the view of finding a home for them.”
“There’s a big JORC resource up there, on a small portion of one of three known and under-explored porphyry systems. We know it’s got strategic value from the various offers that have been put on the table. So I guess in six months’ time, I’d like to think that we’ve effectively announced, if not closed, a transaction on the Mongolian assets.”
Yet, no matter how things shake down, Spring says Kincora is firmly on the copper train.
‘There’s a lot of money sitting on the sidelines that wants to move into copper’
“The reason why we’ve always liked copper, from a Kincora perspective, is it’s more about the supply side — decreasing discoveries, the lack of new projects in development, and the supply side struggling to keep production flat,” Spring explains.
“You’ve seen demand being underpinned, not so much by China in recent times, but increasingly by decarbonisation, and the realisation of how much copper is needed to achieve these net zero ambitions. Because, effectively, it’s the most cost-effective means of conducting electricity. There aren’t too many cost-effective substitutes out there.”
Famed mining billionaire Robert Friedland agrees. In an interview with Bloomberg in January, the American-Canadian founder of Ivanhoe Mines (TSX:IVN) noted the shutdown of the Cobre Panama mine in Panama, as well as declining copper grades in Chile, which have “left the market prematurely tight.”
“Everybody talks about their weak real estate market, which is probably 20% to 25% of their economy, but there’s military demand, national security demand, and so physical offtake is very strong, and inventories are extremely low,” Friedland said.
“India, Europe and the rest of the world is all growing, and the demand for ESG and greening of the world economy remains very high.”
Such a market, in Spring’s estimation, could get more interesting still. Even in previous environments of weaker copper prices, he argues that the M&A activity has nevertheless shown some resilience. It has a tendency to start at the larger, more production-focused end of the spectrum, but Spring is confident we’ll see the same enthusiasm start to filter through to the junior end.
“Whether it’s FMG putting its foot on projects like Magmatic’s, or S2 Resources (ASX:S2R) doing the deal it did recently with Legacy for its porphyry project, I think that thematic is coming through. There’s a lot of money sitting on the sidelines that wants to move into copper,” he adds.
“But they’re generally wanting to go at the more advanced projects, and it’ll take a bit of time to filter through. And probably when the copper price runs” — as analysts are predicting it will — “that will help that flow-on effect.”
Given the current state of the world, there are also geopolitical concerns which might be driving a ‘smart money’ push into more established, safer jurisdiction, such as NSW, Western Australia, and Queensland. But as compelling as things may be, Spring isn’t losing sight of the best way to move forward.
“I think the key thing is really for us to show that, yes, the cycle has changed, the market’s changed, and we’ve adjusted course,” he says.
“We’re looking to come through this downturn — like we did in 2015 and 2016 — in better shape, with better partners, a better story, programs that are funded. Where we can see how we’re going to create sustainable value, not just a little sugar hit from a small drilling program here or there.”
It is — by any measure — a sound enough plan. Exactly what sorts of opportunities it throws forth in the real world of money and markets and madness is, of course, the name of the resource-hunting game.
Write to Oliver Gray at Mining.com.au
Images: Kincora Copper
