Australian mineral explorer and developer, KGL Resources (KGL) is focused on the delineation and development of the high-grade resource at the Jervois copper project in the Northern Territory, Australia, with a view to establishing a high-grade, sustainable copper mine.

Too good to ignore

KGL's rationale for acquiring the Jervois project in 2011 was based firstly on the exciting exploration potential of the Jervois leases given their proximity to the large crustal-scale Jervois Fault, which acted as a plumbing system for mineralizing ore-forming fluids, and the distinctive J-shape of the outcropping mineralised system which extends for a strike length of some 12 km.

In addition, the company's management was of the view that the competitive advantage of Chile's large, low-cost porphyry copper mines was being eroded after 100 years of operations. They believed projects there would increasingly come to experience significant challenges with declining grades and depleted reserves, necessitating a massive increase in capital expenditure levels and operating costs to maintain existing production levels.

The KGL way

To date, KGL's capital management approach to exploration and project development has been marked by a high degree of discipline, and the company has benefited from a stable, patient and supportive long-term shareholder base.

Given the relatively high cost of constructing and operating mines in remote Australian locations such as Jervois, KGL's focus has been on increasing the quality of the project by targeting higher grade mineralisation.

Reasons to be cheerful

The feasibility study of November 2022 confirmed the Jervois project to be technically robust and financially viable with a copper price of US$4.23/lb and supported a high-grade copper mine with production for 11.25 years. 

The strong drilling results from KGL's most recent drilling programmes at the Reward and Rockface deposits continue to demonstrate the strong potential for expansion of the high-grade resource from infill drilling at shallow to intermediate depths, as well as from down hole electromagnetic (DHEM) surveys indicating that both remain open at depth. The results also support a more robust mine plan and the project's economics.

The company is now committed to improving its understanding of the geology, structures and mineralising processes at depth, with ongoing exploration success set to add materially to the value of the project in driving capital efficiencies, cashflow and internal rate of return (IRR) improvement. The more robust market for copper anticipated would also provide KGL with additional production options in the mine plan.

Optimising

For now, given the challenging current market environment, KGL is progressing optimisation studies and risk mitigation strategies to be able to deliver a cost-competitive project on time, when market conditions improve. This has led to a focus on improving key project value drivers including productivity improvements to support project financing.

Highlights include proposed process plant configuration enhancements that would reduce the amount of labour required on-site for construction and act to increase the annual processing rate from 1.6Mtpa to 2.0Mtpa. It has been determined the plant will utilise a conventional crushing, semi-autogenous grinding (SAG) and ball mill comminution circuit and energy efficient Jameson Cell technology in the flotation circuit.

Once the key assumptions and results of the optimised feasibility study are updated, KGL intends to proceed with a pre-construction phase to initially support an expanded drilling campaign.

Once financial closure is achieved on the basis that the requisite conditions to support a sustainable project are met, long lead items can be ordered. It is estimated the construction period will take 12-18 months, followed by commissioning and production ramp-up over a six-month period.

Undervalued

Analysts are forecasting a structural deficit in the copper market of up to 10Mt by 2035.

KGL Resources currently has a market capitalisation of A$68 million (at A12c). Given copper's buoyant prospects and the significant progress KGL has made moving the project along the development pathway, many would argue the company's share price does not reflect the inherent value of its high-grade copper project.

Fertile geopolitical and macro environment

The IEA estimates the world will need 700Mt of copper over the next 20 years to meet its Paris Agreement climate goals. Currently, however, 60% of copper production is concentrated within just five countries (Chile, Peru, China, Democratic Republic of the Congo, and the US), where a range of potential supply chain disruptions exists: political risk, military conflict, violent unrest, paucity of labour and anti-competitive behaviours, alongside the risk of export bans to promote use by domestic industries.

With chronic shortfalls in copper forecast over the next decade and challenges in supply from the traditional Latin American low-cost markets, Australia is well placed to take advantage. Blessed with the world's second largest reserves of copper, it has scope to significantly grow its critical minerals wealth and become an important player in developing secure, reliable and sustainable global supply chains for copper that are internationally competitive. The Jervois copper project is well positioned to be a part of that shift, which is set to cause Australia's global market share to rise from the current figure of just 4%.

Many states and territories in Australia, including the Northern Territory, have now recognised copper as a critical mineral, with the Australian federal government recently announcing that copper is to be included on the newly created Strategic Materials List. This creates a nourishing investment environment for companies like KGL Resources.

The company's market appeal is clear: KGL Resources has a high-grade copper project located in a tier one jurisdiction, and is well positioned with all major approvals to bring Jervois into production when market conditions are supportive. It is highly leveraged to expected increases in copper prices, and has significant exploration upside potential.

In the meantime, the company continues to progress the Jervois project along the development pathway towards final investment decision (FID) and financing.