Carbine Resources management team have been feverishly working to unlock value at there Mt Morgan project in Queensland, utilising modern metallurgy and clever management in a process which has seemingly de-risked the project progressively over the last 12-18 months. Not that you’d know that by its share price action.
100 years of historical mining at Mt Morgan has resulted in sizeable tailings deposits which until recently, didn’t make for the most viable of projects. Following a comprehensive scoping study, Carbine believe they can achieve very low all in sustaining costs for gold production of just under $400 an ounce, utilizing credits from Copper and Pyrite production alongside their main target, gold. Previous reviews of this project were not nearly as favourable due to different extraction methods, however utilising modern methods, Carbine believe they have unlocked serious value at the dormant mine site.
Projections of around 1 mtpa of ore, for around 36 000 ounces of gold, plus 850 tpa and 230 000 tpa of Copper and Pyrite, make for a projected all in sustaining cost of just under $400 USD an ounce. It makes for quite a compelling investment case with the gold price currently sitting at around $1150 USD an ounce.
Given the above projections from the scoping study, which is expected to be further expanded upon in the PFS which is due any day now, it’s hard to believe that Carbine Resource has a current enterprise value of around $5m, with nearly $4m of cash in the bank (market cap approximately $9m). The imminent release of the PFS seems to have spurred some price action of late, but even after these modest gains, the company seems very cheap. Funding the near $80m for plant and equipment to proceed with the project seems to be a hurdle for investors to jump in, however with projected free cash flows of around $30m a year, it’s hard to understand why. Payback of the required capital is feasible in just 3 years, with an expected mine life of 8 years (based on current JORC resource).
Adding to what is already stacking up as a compelling investment case, are the drilling results to date, which have been very encouraging. Whilst we expect a JORC resource update in the future, more importantly we feel that the recent drilling campaign has reduced the risk of the tailings deposits having inconsistent gradings, providing significantly more confidence in the scoping study projections.
At current prices we see this as a screaming buy (and yes we have a holding). Carbine have appointed a new director in Stephen Dobson to the board. Dobson specialises in debt and equity financing, with his appointment clearly pointing to a positive PFS result/outcome. The shares are tightly held, so taking a solid position can be difficult…but we see the possible returns as more than enough to justify our position and will be looking to add to it pending further announcements, specifically the PFS and possibly funding deals.