Sandfire moves spark interest in copper

SANDFIRE Resources has been one of the outstanding success stories in the Western Australian resources sector in recent years, and its story has added to interest in a commodity that traditionally has not attracted much attention in this state.

The copper sector is home to three of WA’s top-performing stocks, Sandfire and two small companies, Resource & Investment NL and Medical Corporation Australasia, which is in the process of changing its name to MOD Resources.

The common link is Miles Kennedy, who previously chaired Sandfire and currently chairs both R&I and MOD.

These companies have become Mr Kennedy’s major focus since his falling out with his long-time business partner and Sandfire managing director, Karl Simich.

The increasing investor interest in copper has been underpinned by a strong commodity price, with expectations copper will remain strong.

Sandfire is going ahead with development of its DeGrussa copper mine north of Meekatharra, just two years since the original discovery.

Since then, its share price has rocketed from just a few cents to $7.10 at June 30 and about $8 currently.

Its share price gain equated to an average annual shareholder return of 200 per cent over the three years to June 2011, according to Morningstar.

That makes Sandfire the top performer among WA’s top 50 stocks over the three-year period.

“It’s all about exploration, it’s about making a discovery,” Mr Simich told the Diggers & Dealers conference in Kalgoorlie this week.

The company is moving promptly toward development of the DeGrussa mine, at a cost of $384 million.

“The project is moving forward at a rapid rate of knots,” Mr Simich said.

“Everything is either on track or ahead of the DFS (definitive feasibility study) schedule.”

The company has locked in debt funding, and finalised fixed-price construction contracts that largely de-risk the development.

The development is based on projected revenue of $4.2 billion and pre-tax operating cash flow of $2 billion.

Sandfire’s success at DeGrussa prompted more than a dozen other companies to step up their exploration programs in the area.

These include R&I, which has enjoyed a soaring share price since early last year when the company bought tenements near Sandfire’s planned mine.

A third notable company with tenements in the same area is Talisman Mining, backed by former Jubilee Mines chairman Kerry Harmanis.

To date, these neighbouring exploration programs have not come near the success of Sandfire, which itself is pursuing a “very aggressive” exploration program.

However it is early days. R&I, for instance has been engaged in surface mapping and an airborne magnetic and radiometric survey, and has only recently started a 950-hole drilling program.

Other Perth-based companies with exposure to copper have their assets in other states or other countries.

Exco Resources recently completed the $175 million sale of its Cloncurry copper project in Queensland to Xstrata, and is dividing the proceeds between a capital return to shareholders and a new exploration program.

Tiger Resources has started operations at its Kipoi project in the Democratic Republic of Congo. It has completed the first of a three-stage development program.

Its neighbours in the DRC include Anvil Mining, which is pursuing a major expansion of the Kinsevere copper mine. Anvil had its origins in Perth but its head office is now in Canada, following its listing on the Toronto Stock Exchange and capital raisings in North America.

Altona Mining is on the path to being a copper miner, with development of its Kylylahti mine in Finland under way and mining due to commence late this year. It also plans to complete a new feasibility study for its Roseby project at Mt Isa in Queensland, with a view to making a decision on construction in mid 2012.

New players in the copper sector include Whinnen Resources, which boasts Sandfire as a 17 per cent shareholder, and Hot Chili, whose shareholders include nickel miner Panoramic Resources. 

Both companies have exploration projects in South America.

MOD Resources is the most recent investor in the copper sector.

The company moved into the resources sector last year when it agreed to purchase an unlisted public company, Amphion International, which was chaired by Mr Kennedy.

He has subsequently become chairman of MOD, which announced in March the purchase of the GMR copper project in Botswana.