Hartleys Research: Altona Mining - 0,19 AUD Kursziel

SRIG agreement terminated. New deal sought. 

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Altona has terminated its agreement with the Sichuan Railway Investment Group (SRIG) following the failure of SASAC to grant approval by the latest deadline (21 July 2017).

The decision ends over two years of work towards the JV. The announcement of SASAC approval in February 2017 proved a false dawn.

Altona has $36M in cash (7cps) and 100% of the Cloncurry Copper Project. An alternative 3rd party agreement is now sought for Cloncurry’s A$300M development.

Cloncurry has many attractions.

In the list of undeveloped, unfunded copper projects held by independent ASX listed companies, Cloncurry is Australia’s most advanced +30ktpa green field proposal. The Project has a completed feasibility study, granted mining leases and an approved Environmental Authority.

In the March 2014 project feasibility study Altona estimated $A294M capex and a US$2/lb AISC cost average, across up to 35ktpa copper output. The feasibility study is due for revision, incorporating subsequent reserve and resource additions at Turkey Creek and Bedford, the effect of infrastructure built for Dugald River, and cost setting changes. Exploration tenure held over 3,000 km2 of the renowned Mt Isa Inlier (Wonga Belt) geology is a further hook to potential partners.

Firm interest expected.

While urgency to develop new copper sources seems currently muted, Hartleys expects interest in Cloncurry from major miners will be healthy, particularly as the copper outlook strengthens. Australia is a favoured jurisdiction for mining investment and Cloncurry presents a walk up copper investment opportunity showing positive returns and exploration upside.

Presumably Altona will not be able to repeat the terms of the SRIG deal, but the Altona share price never reflected full credit for it anyway. Hartleys thinks that in the current market, retention or realisation of 35% of our estimated project NPV of A$185M (8% after tax discount rate) for Altona shareholders, is achievable in a new commercialisation deal, suggesting a 19cps 12 month price target. There are few recent similar transactions or clear comparisons to test our assumptions against, so Altona’s progress will be closely monitored.

There is always demand for good copper projects.

In US$ terms copper is up 10% since early May 2017, against a background of firming demand in Europe and China, and semblance of a return to supply normality after the disruptions to Indonesian and South American mines in the first half of CY2017. The value of Cloncurry, and the terms on offer from potential partners, is sensitive to levels of insecurity about future copper supplies. We maintain a Speculative Buy recommendation with a reduced 12 month target price of 19cps. 

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