Company Overview - Sirius Resources NL is an Australia-based mineral exploration company. The Company’s tenement portfolio lies in Western Australia, covering over 8,500 square kilometers, making the Company a gold, nickel and base metal explorer. The Company’s projects are located in gold and nickel districts and in emerging gold, nickel and base metal provinces. The Company is prospective for komatiite style nickel sulphide deposits, intrusive style nickel deposits, volcanogenic massive sulphide, copper-zinc deposits, lode gold-style deposits and porphyry-style molybdenum-copper-gold deposits. The Company focuses on its 100 percent owned Nova Nickel project situated east of Norseman, where it made a nickel-copper sulphide discovery known as the Nova-Bollinger deposit and Polar Bear project for gold and nickel. The Company is exploring on its 70 percent owned Fraser Range Project situated east of Norseman. The Company focuses on the Earlobe gold prospect in a region containing gold and nickel mines.
Analysis - Quite recently, Sirius Resources (SIR) made news when it concluded an agreement with BHP Billiton (BHP) Nickel West Pty Ltd for supplying roughly 50% of the planned concentrate of nickel sulphide to be produced at Nova Nickel. The production forecast is likely to start in 2016. The concentrate will be shipped by truck to Nickel West’s processing facilities at Kambalda. The terms of the agreement remain confidential. The company is also negotiating with parties for the remaining half of the concentrate and intends to conclude agreements by the mid-2015. Discussions are also underway with another party for offtake negotiations for copper sulphide concentrate production from Nova.
As per the Company, the loss from continuing operations for the half-year ended 31 December 2014, after providing for income tax, was $4,469,000 (compared to $9,213,000 for previous corresponding period). No dividends have been paid or are proposed to be paid for the half-year. The Company raised capital totalling $207,386,869 including the placement of 49,543,683 shares at a price of $3.82 per share as well as the exercise of various options. As regards financing, the Company and its wholly owned subsidiary Sirius Gold Pty Ltd concluded and signed an agreement for a syndicated facility with financiers including Australia and New Zealand Banking Group Limited, BNP Paribas, Hongkong and Shanghai Banking Corporation Limited and Westpac Banking Corporation. This facility will be used to finance the development of the Nova Nickel project and consists of a project development tranche of $420m for development and working capital in the construction, commissioning and ramp up stages of the Nova Nickel Project along with a cost overrun tranche of $20m. Both tranches will be available until the completion of the ramp up and the performance testing.
Boxcut in fresh rock at Nova (Source – Company Reports)
With regards to the Nova Nickel Project updates, the Definitive Feasibility Study (“DFS”) has been completed and among the highlights were Maiden Probable Ore Reserve of 13.1mt grading 2.1% nickel, 0.9% copper and 0.07% cobalt for a contained 273,000t nickel, 112,000t copper and 9,000t cobalt. The initial mine life is estimated at 10 years plus 2 years of development. The capital cost of the development is estimated at $473m which includes a contingency provision of 5%. The plant throughput of 1.5 mtpa will result in the annual production of approximately 26,000t nickel, 11,500t of copper concentrate and 850t cobalt. The C1 cash cost is A$1.66/lb Ni (US$1.50/lb) after accounting for by-product credits and the all in sustaining cash cost is A$2.32/lb Ni (US$2.09/lb), on a 100% nickel payable basis. The boxcut mining has been reported to progress ahead of schedule while a depth of 22 meters below surface has already been reached. GR Engineering Services will be the tenderer for construction of the process and paste fill plants. The Company expects to have the contract works commencing in 2Q 2015 with construction mobilisation planned for 4Q 2015. So far, SIR has entered into several contracts, for instance, Barminco Limited have been contracted for mining services to develop the underground mine (contract value estimated at $129m). Watpac Civil and Mining Pty Ltd have been contracted to construct the Tailings Storage Facility at an estimated value of $17m. The company has also entered into a contract with Tristar Water Solutions Pty Ltd to construct the Water Management and Distribution Facility at an estimated value of $4m.
Construction at Nova commenced on 26th January 2015 and the first ore is expected in Q2 2016 and the first ore feed to the processing plant is expected in Q3 2016. Concentrate production is estimated to commence Q4 2016 with the first nickel and copper concentrate shipments scheduled for in Q1 2017. Mining on the project started on time. Capital cost savings of roughly $30m have been identified without compromising on quality and the DFS budget is now $443m which includes contingencies of $22m. SIR has also signed contracts with various companies in January 2015 with regards to the construction of village at Nova, access road and aerodrome and the like.
Central Zone at Baloo (Source – Company Reports)
At Baloo, results have been received from four diamond holes (SPBD0091 – SPBD0094) drilled to follow up the initial diamond hole (SPBD0090) announced on 2nd March 2015. The results validate the initial aircore results with further intersections (1–30m) of gold mineralisation (1.8-9.7g/t Au) at shallow depth (from 16–114m). Gold has been found to be associated with quartz veining and pyrite-arsenopyrite alteration. Results are awaited for a further nine diamond holes drilled few weeks back. Three diamond rigs have been reported on site drilling to scope the extent and nature of the primary gold mineralisation in fresh rock. A reverse circulation (RC) rig has also been commissioned for replicating the original aircore drilling to provide the basis for a JORC resource estimate of the oxide zone. As per the April 2015 exploration updates, the Company has been able to witness thick, high grade primary gold mineralisation intersected in several diamond holes beneath Baloo. The primary gold shoot has been found to be up to 10 metres thick and 70 metres wide. A strong electromagnetic conductor has also been identified close to copper anomaly at Lake Harris in Fraser Range JV Area.
Plan for Aircore and Diamond Drilling at Baloo (Source – Company Reports)
With regards to updates at Monsoon, sporadic mineralisation over a 400 metre strike length has been defined owing to reconnaissance aircore drilling on an 80 metre by 40 metre grid (12m @ 16.9 g/t Au from 68m). This is associated with quartz veining and arsenopyrite alteration within a north-northeast trending shear zone on a mafic – shale contact. What we see is thatthe gold mineralisation identified to date at Baloo, Monsoon and Nanook is indicative of a significant gold mineralised trend.
Reconnaissance Aircore Drill Intercepts at Monsoon (Source – Company Reports)
As far as other projects are concerned, the new discovery of gold at Baloo as well as the aggressive exploration of 2000 square kilometres of prime virgin territory for nickel promised plenty of exciting potential for exploration and the additional low-cost projects are capable of catapulting the company into the big time. The Company has several options to choose from in order to promote high growth projects being executed at relatively low cost. New opportunities have been identified in Finland and Sweden both of which are high potential countries with environments favourable for the mining business. Acquisition of 67% stake in the private Finnish company Sakumpu Exploration Oy for a small purchase consideration as well as the funding of exploration worth $2m have been other highlights. Diamond drilling has commenced at Crux (with 11 reconnaissance diamond holes already drilled but most intersections returning low grades of ~0.3% Ni) and is under way at Centaur. The previous testing was for the untested basal zone on FRIV intrusions along the style of Nova. EM is underway on FRIV where three new anomalies on nickel-copper soil have been identified. Follow-up drilling has been planned for new anomalies identified during the course of exploratory salt lake drilling at Polar Bear. Follow-up drilling is also planned for Taiwan trend where thick zones of disseminated nickel sulphides were observed during drilling in 2014.
With great expectations from and potential seen at Nova project, the nearby Bollinger deposit may also give some boost. We expect Nova to be one of the lowest cost producers in the world even better than its peers. If we factor in the exchange rates and the relatively cheap financing, it is easy to see why Nova makes SIR such an attractive investment prospect.
Given the above, we expect an upside in the share price in the near future. Accordingly, we put BUY recommendation on this stock at the current price of $2.62.
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