The old adage ‘buy the rumour, sell the news’ claimed Thor Mining (LSE:THR) as another victim this week, with the resources firm taking a drubbing on AIM after announcing an inferred resource estimate at its Kapunda copper project. In its update, Thor reported that the South Australian project, in which it holds a 45pc interest, is estimated to contain 119,000 tonnes of copper within an inferred resource estimate of 46.4m tonnes grading 0.25pc copper.
Thor’s new resource only covers the part of the Kapunda deposit that is considered amenable to in situ recovery – its top 100 metres which hosts copper species that are readily leachable.
The company said the estimated copper contained at the resource is ‘well above expectations’ of around 45,000 tonnes. It added that the metal can be recovered relatively cheaply due to the low cost of leaching and said that only a modest amount of infill drilling will be required to upgrade the resource to measured or indicated status.
Although Thor’s share price has now partially recovered to 3.1p, the news triggered a large sell-off when the estimate was released on Monday, and shares fell from 4.1p to 2.9p. It is possible that this drop was down to fears that, at just 0.25pc, the ore grade that had been discovered was negligible.
But it is worth pointing out once again that this is a leaching project. This cheaper method has always been best suited to low-grade ore, which could not economically be sent through the alternative, highly expensive milling process. Indeed, similar in situ recovery projects around the world can be seen to also have low copper grading.
For example two in situ projects operated by BHP Billiton (LSE:BLT) – a much larger firm than Thor – use resources graded between just 0.3pc and 0.5pc and have been in production for more than a decade.
In today’s booming copper market, where prices are being driven by troubling supply/demand dynamics, there appears to be no reason why Thor cannot make its resource base work at a grade of 0.25pc.
With copper prices currently sitting around $7,000 a tonne – a figure which Goldman Sachs expects to rise above $8,000 by 2022 as supply continues to fall and growth swells – the initial resource at Kapunda could be worth a notional £833m. Thor’s 45pc stake of this would be worth £367m. Even with production costs, this amount towers over Thor’s current market cap of just £15.5m.
Furthermore, in return for its stake in Kapunda, Thor only has to invest a maximum of $1.8m over three years (at least $300,000 in each of the years) via convertible loan notes.
If Kapunda’s estimated copper resource is fully recovered, then this could turn out to be a very good deal, which opens up a significant revenue stream for Thor.
As executive chairman Mick Billing puts it: ‘Thor is uniquely placed with a right to earn into an effective 45% interest in this strategically significant project, just at a time when new copper opportunities are being sought in safe jurisdictions.’
Bigger picture
Another point to remember is that Kapunda is just one of Thor’s projects. It has further interests at sites spread across the US and Australia. For example, it the sole owner of the Pilot Mountain site in Nevada, which has a whopping inferred indicated resource of 11.7mt of tungsten trioxide (another heavily ‘in vogue’ metal), copper and silver. It also owns the Molyhil site in Northern Australia, which is estimated to contain tungsten reserves worth around $300m and molybdenum valued at $170m.
As we reported last month, publicly available assessments of Thor’s value suggest it already controls at least $1.8bn worth of metals. With the firm claiming in November that it is fully funded until 2019, following heavy investment from Metal Tiger (LSE:MTR) and a $1.3m placing in October, these resources should not be sniffed at.
