CTTZF - Centaurus Metals Has A World Class Development Stage Nickel Sulphide Project In Brazil

2023-04-17 13:35:13 ET

Summary

• The Jaguar Nickel Project has a Total Resource of 108.0Mt @ 0.87% Ni for '938,500 tonnes' of contained nickel. This will potentially move to 'over 1 million tonnes' soon.
• Valuation looks very reasonable. Current consensus analyst rating is a 'buy' with a price target of A$1.96, representing 126% potential upside.
• Risks look moderate - Funding for the initial CapEx of US$288m looks achievable. Moderate country risk in Brazil.
• We rate Centaurus Metals as a good spec buy suited for a 5 year+ time frame.

This article first appeared in 'Trend Investing Investing Group' on March 16, 2023 at A$0.815; but has been updated for this article.

Centaurus Metals Limited [ASX:CTM] (CTTZF) is an Australian company with a very promising large nickel sulphide project in Brazil and an advanced stage iron ore project also in Brazil.

Centaurus Metals Limited [ASX:CTM] 5 year price chart - Price = A$0.91 ( source )

Centaurus Metals has two very significant projects in Brazil. They are:

• Jaguar Nickel Sulphide Project (flagship). Located in the Carajás Mineral Province of northern Brazil.
• Jambreiro Iron Ore Project in south-east Brazil.

The Jaguar Nickel Sulphide Project (Brazil, 100% owned)

The Jaguar Nickel Sulphide Project is a tier one (world class) global project due to its size, grade, sulphide nature, and quite shallow deposit suitable to an initial large open pit operation potentially followed by underground mining. It also has a high ESG rating as Brazil’s national power grid runs on +80% renewables.

Centaur us state :

Centaurus is developing one of the world’s premier new near-surface nickel sulphide projects, with class-leading GHG emission credentials, to take advantage of surging demand for Class-1 nickel from the global EV industry.

The Project was acquired from Vale ( VALE ) in April 2020 and includes multiple nickel sulphide deposits and exploration targets within a 30km ² land package .

Location map of the Jaguar Nickel Project ( source )

Resource details

The November 2022 Mineral Resource Estimate is 108.0Mt @ 0.87% Ni for 938,500 tonnes of contained nickel . The 938,500 will soon potentially grow to be over 1 million tonnes of contained nickel.

Centaurus state they have "the largest nickel sulphide deposit on the ASX not held by the majors."

November 2022 Mineral Resource Estimate ( source )

Jaguar Project - Shows the proposed open pit shell line ( source )

Jaguar Project 2021 Scoping Study

The Jaguar Project 2021 Scoping Study resulted in a post-tax NPV of A$1.11 billion 52% IRR (based on a nickel price of US$7.50/lb + US$0.50/lb sulphate premium). At a US$10.00/lb nickel price (the current nickel price is US$10.55/lb ), the post tax NPV8% is A$2.2 billion with 89% IRR. Initial CapEx is estimated at US$288m. Production average is estimated at +20,000tpa of nickel-in-sulphate and +9,600tpa of a mixed sulphide precipitate [MSP] an 'initial' mine life of 13 years. It assumes that 75% of the mill feed is from an open pit. C1 cash costs are quoted as US$3.29/lb nickel which is quite good.

Jaguar Project 2021 Scoping Study highlights ( source )

Scoping study highlights ( source )

Access and infrastructure are reasonable. Grid power is within 40km of the Project. The Project will be able to source l ow cost, clean power .

Jaguar Project location map ( source )

Jambreiro Iron Ore Project (Brazil, 100% owned)

The Jambreiro Project is located in south-east Brazil with potential to produce up to 3m tpa of iron ore. It has an approved mining licence and environmental approval.

Centaurus state : It "is a shovel-ready development project that is licensed for 3Mtpa of production and represents a strategic asset in the Brazilian domestic iron ore and steel sector, particularly with the premium pricing that exists in the market for high-grade ore (+65% Fe) such as that which could be produced at Jambreiro."

The JORC 2012 Proven and Probable Ore Reserves estimate is 43.3Mt grading29.1% Fe; however the Ore Reserve is 17.9Mt of high-grade (65% Fe) , low-impurity (4.3% SiO2, 0.8% Al2O3 & 0.01% P) sinter product to support the initial 18-year mine life.

The Jambreiro Project July 2019 PFS (based on a 1Mtpa start-up project and US$75/t iron ore price) resulted in a post-tax NPV8% of A$147.2m and post tax IRR of 37%. Initial project CapEx was A$59.8m. At US$95/tonne the post-tax NPV8% rose to A$225m and 49% IRR. A later updated PFS can be viewed here where the post-tax NPV8% was quoted lower at A$114.9m.

Based on all of the above the economics mean the project works at a US$75/t iron ore price but is much more attractive at higher prices. This also helps explain why the project has not yet achieved funding and entered production.

Location map showing the Jambreiro Iron Ore Project in south-east Brazil ( source )

Valuation

Centaurus' current market cap is A$386m . Cash is shown in the Feb. 2023 company presentation as A$34m . Market Screener has net debt at zero . You can view the December 31, 2022 financial report here .

At a US$10.00/lb nickel price (the current nickel price is US$10.53/lb ), the Jaguar Project post tax NPV8% is A$2.2 billion. So based on the current market cap of A$386m, Centaurus is trading at 17% of NPV (quite cheap). If we use the US$7.50/lb nickel price and A$1.11b NPV, Centaurus is trading at 35% of NPV (about fair value).

Either way the valuation looks to be very reasonable, but ultimately depends on the outlook for nickel prices and how well Centaurus progresses.

Note: The above discussion is giving zero value for Centaurus' iron ore project.

Current consensus analyst rating is a 'buy' with a price target of A$1.96 , representing 126% potential upside.

Management and top shareholders

Managing Director & Chief Executive Officer is Darren Gordon . Centaurus state : "He is is a Chartered Accountant with 25 years’ experience in the mining industry as a senior finance and resources executive. Mr Gordon has had extensive involvement in financing resource projects from both a debt and equity perspective, including his previous position as Chief Financial Officer for Gindalbie Metals Limited. Mr Gordon has over 12 years’ experience operating in Brazil."

You can read more details on the board and management here and here .

Insider ownership is low at ~4%; however it is positive to see Sprott Asset Management on the shareholder register with ~9.52%.

Management, board and shareholders ( source )

Top shareholders

Latest news

• March 29, 2023 - "Drilling at Jaguar Returns Intercept of 20.4M @ 3.94% Nickel"....." from 612.7m"....."High-grade mineralisation intersected in step-out hole at Jaguar South 120m below previous deepest drilling forming part of a new high-grade shoot extending over 180m of strike and remaining open down-plunge. "
• March 15, 2023 - "Strong Results from Jaguar Pilot Plant Testwork.....Work to date continues to confirm the quality of the Jaguar Project and its potential to produce a battery-grade nickel sulphate product for the rapidly growing EV market...... Extensive flotation testwork demonstrated over 94% sulphide nickel recovery to concentrate (equivalent total nickel recovery of 78% based on average head grade of current Mineral Resource Estimate), with over 800kg of high-quality concentrate produced to feed the Jaguar Pilot Plant. "
• February 6, 2023 - "Drilling continues to grow and de-risk the Jaguar Project. Latest step-out and deeper drilling at key deposits confirms the potential for further significant resource growth towards 1 million tonnes of contained nickel metal and beyond."
• January 24, 2023 - "Quarterly Activities/Appendix 5B Cash Flow Report. ......Updated JORC 2012 Mineral Resource Estimate (MRE) confirms Jaguar as one of the world’s premier near-surface nickel sulphide development projects."

Catalysts

Catalysts for the Jaguar Nickel Project

As shown in the chart below the near term catalyst is the DFS in Q4, 2023 . Subject to permitting and funding the Project CapEx of US$288m, construction could potentially begin in 2025 and first production by Q1, 2027.

Jaguar development timeline ( source )

Risks

• A global and/or EV sales slowdown may reduce demand for nickel and/or iron ore.
• Nickel prices falling . Nickel is mostly used in stainless steel so is mostly impacted by any fall in global construction.
• Mining risks - Exploration, funding, permitting, production, project delays/cost blowouts. Initial mining is expected to be open pit then potentially later underground if the full resource is to be accessed. Underground mining is more hazardous and expensive.
• Company risks (competition, management, funding, debt, liquidity and currency risks).
• Sovereign risk - Moderate in Brazil.
• Stock market risks - Dilution, lack of liquidity (best to buy on the local exchange), market sentiment.

Further reading

• Company website
• March 2023 company presentation

Centaurus Metals highlights ( source )

Conclusion

Centaurus' Jaguar Nickel Project in Brazil is one of the world’s premier near-surface nickel sulphide development projects. The contained nickel content is approaching 1 million tonnes. Quality nickel sulphide projects are rare.

The sulphide ore is amenable to producing battery-grade nickel sulphate which is forecast to be in short supply due to the surge in demand for EVs.

Valuation looks very reasonable on a market cap of A$386m. Current consensus analyst rating is a 'buy' with a price target of A$1.96 , representing 126% potential upside.

Risks mostly revolve around permitting and funding the initial Project CapEx and making it to production. Moderate country risk in Brazil.

We rate Centaurus Metals as a good spec buy suited for a 5 year+ time frame.

As usual all comments are welcome.

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