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07/09/17
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Local Markets

Australian equities were lower on Wednesday, with the ASX200 falling by 0.3% following sharp declines on Wall Street the previous night with concerns over the situation in North Korea. With the US closed on Monday, our market had already factored in much of the cautiousness from investors following the weekend's bomb test. 

Banking stocks were hardest hit with the sector down over 1% and acted as the biggest drag on the market as they followed similar moves in their US counterparts. Insurers also pulled back with Suncorp falling 2.1% and QBE was down 2%.

Mining stocks outperformed with buyers pushing lithium miner Galaxy Resources up 7.39% to be the day's best performer. South32 was 2% higher to $3.08 to be a whisker away from it's all time highs. The stock will be going ex dividend next week, but if it can significantly break out above it's all time highs this would likely lead to further buying support for the stock which would then be trading in blue sky territory with no overhead resistance in sight.


International Markets

A rebound in energy shares led U.S. benchmarks higher on Wednesday after congressional leaders and President Donald Trump agreed to extend the debt limit deadline and fund the government through mid-December.

The gains seen on Wall Street came as investors grappled with lingering concerns over North Korea, Hurricane Irma, doubts about President Trump's business-friendly agenda, news that a key Federal Reserve official is resigning, and persistent worries about elevated stock valuations.

The trade deficit rose slightly in July, keeping the U.S. on track to post a larger gap in 2017 than in 2016. The deficit edged up to $43.7 billion in July from $43.5 billion in June.

At the close, the Dow, the S&P 500, and the Nasdaq were all up around 0.3%.
To Read the Full Morning Report Please CLICK HERE
Hot Chili Ltd (HCH) - Company Update

HCH add second high grade copper project to further high grade satellite strategy

 

5/09/17

Current Price: $0.04

 

Key Points

 

Technicals

 

·         HCH has made an agreement with a well-known Chilean family to take an option over the extension of one Chile’s highest grade historical copper projects

·         Named Lulu, the project is located 30km west of Productora and within trucking distance.

·         A “road” already connects Lulu with Productora

·         Lulu is the extension of a substantial UG copper project which reportedly has been developed to a depth of 600m on vein structures, averaging 6% copper and 3 g/t gold

·         Higher grade ore shoots within the mine, who shaft lies just to the north of the project boundary, are up to 7m wide and average 12% copper and 5g/t gold

·         HCH’s LOI with the Chilean family is for a 70% interest

·         The project has never been drilled

·         It lies at an altitude of 950m

·         It is therefore considered early stage but given the proximity to the existing operation and the high grade sampling conducted on the structure at surface, we believe the project is brownfields

·         800m of the host structure has been confirmed over the ground under the LOI

·         The structure dips at 60-70 degrees southwest and at surface, where observed, is a carbonate vein varying in width between 0.7m and 2.3m

·         Sulphide copper mineralisation is associated with chalcopyrite, bornite and minor covellite. It is the bornite mineralisation that gives the structure its grade.

·         Oxidation persists to a depth of 75m

 


Source: HCH

Deal Structure

 

·         Once again, the agreement has been made within HCH’s 100% subsidiary, Frontera, and is over a 4-year period

·         US$75k upon formal execution of the JV option agreement

·         US$75k 12 months from execution

·         US$150k 24 months from formal execution

·         US$1520k 36 months from formal execution

·         US$2.0m 48 months after formal execution

·         Exploration expenditure at the discretion of HCH over the first 36 months.

·         JV owner to be able to exploit 50,000 tonnes per annum

 

In Conclusion

 

This agreement has come less than a week from the announcement of an LOI over the San Antonio copper project located to the east of Productora, also within trucking distance. HCH are not wasting any time in trying to secure the regions high grade resources as secondary mill feed to the flagship bulk tonnage Productora project.

 

We have seen what the effect is of adding a minor amount of higher grade tonnage to a bulk low grade feed source with our brief example in our last flash note. The Lulu Project however, if successfully exploited and milled at Productora, would have an even greater effect on average head grade if the grades in the structure reflect the grades seen in the adjacent mine.

 

To provide a further example:

 

Productora feed :          12.0Mt at 0.5% Cu

San Antonio      :             1.0Mt at 2.0% Cu

Lulu                  :             0.5Mt at 4.0% Cu

 

Total                 :           13.5Mt at 0.74% Cu

 

In the example above, a relatively small amount of higher grade fed has the effect of lifting the head grade by circa 50%

 

HCH are still to drill Phase 2 of their exploration strategy on the proximal porphyry targets immediately adjacent to Productora. Porphyry copper deposits are generally known for their bulk-tonnage low grade  - between 0.4% Cu and 0.6% Cu. Success here would see additions to mine life but at these grades, may not materially affect the head grade.

 

The strategy of targeting the regions high grade deposits directly addresses the head grade and is likely to have a larger impact on project economics than the development of a second bulk tonnage target at similar grade, at least in the early years of the operation.  Higher grades at the start of the operation would drive NPV higher and reduce the payback period.

 

We assume that exploration will begin at Lulu as soon as drill permitting is obtained, sometime in Q4.

 

In addition, the copper price continues to remain buoyant with copper prices now at US$3.11/lb.

 

HCH provides a high degree of leverage to the copper price. Any successful exploration results from either San Antonio and/or Lulu over the course of the next quarter should be received positively.

 

Head of Research
Paul Adams

White Rock Minerals Ltd. (WRM) - New Research Report

Red Mountain Zinc Project - Valuation


30/8/17
Speculative Buy - Red Mountain Project Valuation $0.06
 

The Red Mountain Polymetallic Project is located 100km south of the city of Fairbanks in Alaska, United States. RPM Global Holdings Limited (“RPM”, formerly Runge Pincock Minarco Limited) derived a maiden JORC 2012 resource estimate of 16.7Mt at a zinc equivalent grade of 8.9%. This immediately places Red Mountain as an important VMS asset within a global context and one that stands as a peer to the more well-known deposits such as Heron’s Woodlawn deposit and Red River Resource’s Thalanga project. We derive a valuation for the Red Mountain Project, using transactional-based and peer analysis-based methodologies of A$52.9m, but note the significant potential to increase the resource base from numerous, untested, high priority exploration targets.
 

KEY POINTS
 

• A significant resource generated from historical data: RPM produced a maiden Inferred JORC 2012 resource estimate for the Red Mountain polymetallic project in April 2017, compiled from three zones in two deposits. The resultant global resource of 16.7Mt at 8.9% zinc equivalent presents WRM with a number of options with respect to further development.

• High grade component: Within the existing global resource is a high-grade resource of 9.1Mt at 12.9% Zn equivalent (using a 3% Zn cut-off grade). This places Red Mountain as one of the highest grade and more significant deposits of any zinc company listed on the ASX.

• Direct zinc deposit peers are going into production: The closest direct peer to Red Mountain’s global resource is Heron’s (ASX:HRR) Woodlawn deposit, which is just started earthworks in preparation for imminent construction. The high grade resource’s closest peer is the Thalanga Project, owned and operated by Red River Resources (ASX;RVR), also just about to start production.

• Combination of valuation methodologies: We undertook an analysis of recently completed transactions involving VMS deposits and analysed WRM’s peer group on the ASX to derive a market-based valuation using enterprise value per tonne of Zn equivalent metal. We did not assume any value for exploration upside, or any value for WRM’s gold and silver Mt Carrington project in NSW. We then cross-checked against a 1% of in-situ metal value, as a “rule-ofthumb” valuation methodology.

• Plenty of upside: WRM hold 143km2 of highly prospective ground that has remained in private hands for over a decade, has had no modern exploration and has 30, individual, undrilled VMS targets. There is good potential for additional discoveries to add to the resource base.

• Average valuation: We averaged the results of the different valuation methodologies to derive
an average of A$52.9m, equivalent to $0.06 per share.

 



To read the full research report please click on the image  below:

Head of Research

Paul Adams

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