Doolgunna hitting its straps
A cashed up Sandfire Resources (ASX:SFR) is enjoying early success from exploration, as the company reports on its exploration efforts at its Doolgunna copper project. The Doolgunna ground is adjacent to the company’s DeGrussa copper mine, and on early results could add significant future value to that operation. The exploration success across the Doolgunna tenements has prompted the company to acquire all the adjacent Springfield tenements. The following figure shows the regional location of both the Doolgunna and Springfield tenements:
Source: Sandfire Resources (ASX:SFR)
First to the exploration success at Doolgunna, where the company has been undertaking exploration activities focussed on the Morck’s Well prospects. Exploration at Morck’s Well will meet the requirements of the recently entered joint venture (JV) with Auris Minerals (FAT-AUS-869). Including the Springfield ground, the company has exposure to some 6,200 square kilometres around its DeGrussa mine (previously approximately 5,846 square kilometres).
The company has been conducting an aircore (AC) drill programme across the Morck’s prospect to follow-up on an earlier versatile time domain electromagnetic (VTEM) survey undertaken at Morck’s Well. The following figure shows drilling activities at Morck’s Well and where mineralisation has been intersected:
Source: Sandfire Resources (ASX:SFR)
The VTEM survey identified priority drill targets with Morck’s Well selected as having significant potential.
We believe the DeGrussa mine and adjacent ground, now secured in the hands of the company, have blue-sky potential.
AC drilling at Morck’s Well has intersected narrow zones of sulphide and supergene copper mineralisation. Some of the better results include 11 metres graded at 3.5% copper from 73 metres, three metres graded at 9.5% copper from 81 metres, 9 metres graded at 2.3% copper from 146 metres and three metres graded at 5.7% copper from 149 metres. The following figure shows a concept of the Morck’s Well mineralisation from results to date:
Source: Sandfire Resources (ASX:SFR)
These are significant results as to location, grade, seam width and depth, and will warrant, we believe, future follow-up exploration. The potential of the ground around the DeGrussa mine is now being revealed at Doolgunna with early success at the Morck’s Well prospect.
Early exploration success at the Doolgunna project has seen the company move to acquire the 30% interest in the Springfield Project adjacent to the DeGrussa mine shown in the first figure. Acquiring the 30% interest in the Springfield project will bring the company’s interest up to the full 100%. The Halloween West tenement will be included in the land acquisition deal.
Turning to the daily chart, a series of resistance levels have been taken out in 2018. A dip back below the 238.2% Fibonacci retracement at $9.40 may represent just a temporary pause. Medium-term momentum is favoured to the upside due to the presence of a bullish moving average crossover. This is when the 50-day moving average (red line) crosses above the 200-day moving average (green line). Price also remain comfortably above both the moving average lines.
The company will pay Talisman Mining a cash payment of A$72.3 million for the 30% interest in the Springfield project.
The acquisition is on a cash and debt free basis to the company, meaning no cash or debt will be transferred to the company on completion of the acquisition. The company will also assume, after completion of commercial terms, a 2.25% gross revenue royalty over 30% of the existing Monty mineral resource estimate for copper and gold. In lieu of the revenue royalty, Talisman Mining will receive a 1% net smelter return on future discoveries made on the Springfield tenements. The acquisition document is expected to complete at or around 7 July 2018. The date for shareholders of Talisman Mining to vote on approving the sale has yet to be convened.
Acquisition of the Springfield project is subject to conditions, that on our review do not appear detrimental to the transaction completing.
We consider the transaction to be fair and reasonable in value, given that the company knows the Springfield ground already through its existing 70% interest. The company undertook drilling at the Vulcan prospect in 2017.
The Springfield tenements host the Monty copper-gold deposit which has an existing joint ore reserve compliant resource of 1.1 million tonnes of ore. The following table shows the Monty mineral resource (Cu – copper, Au – gold, (g/t) – grams per tonne, t – tonnes and oz – ounces):
Source: Sandfire Resources (ASX:SFR)
The Monty resource is a high-grade copper deposit only ten kilometres from the DeGrussa plant. A positive feasibility study of the Monty deposit has already been completed. The mine will have a three-year life and have a development cost of A$50 million. Ore mined will be processed at the company’s existing DeGrussa plant at a rate of 300,000 to 400,000 tonnes per annum. Ore feed to the DeGrussa plant is expected to commence in 2019. The high-grade copper ore and proximity to an existing plant makes the Monty prospect commercially viable.
Referencing the monthly chart, the picture is equally bullish. With multiple layers of resistance cleared, the next region in focus is the 127.2% Fibonacci retracement at $10.55.
With Sandfire Resources (ASX:SFR) robust financial position, it held a cash resource of A$188 million at 31 March 2018, to act as a springboard to explore a smorgasbord of ground around the DeGrussa mine with latent potential. The company will update its cash position to 30 June 2018 during July 2018. Sandfire Resources appears to be well positioned to deliver future shareholder value on any incremental improvements in the copper and gold prices and now further exploration success.
Consequently, Sandfire Resources (ASX:SFR) will remain firmly held in the Fat Prophets portfolio.
Disclosure: Sandfire Resources (ASX:SFR) is held within the Fat Prophets Mining & Resources portfolio.
