Alma Metals (ASX:ALM): An aspiring copper developer, hoping to follow in the steps of Caravel

There’s not that many opportunities for investors wanting exposure to potential copper developments, but Alma Metals (ASX:ALM) is one company to take a look at. Alma Metals has a 51% stake in the Briggs Project in Queensland with a major resource as it stands. It has significant room for further resource growth, is strategically located and could generate a significant amount of money for the company and its investors.

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Alma Metals (ASX:ALM) has 51% of the Briggs copper project

Briggs is located around 50 km west of Gladstone. The project area had been worked in for many decades prior to it, but it took work from Canterbury Resources (ASX:CBY) to grasp the full potential of it. Alma entered an option and earn-in joint venture agreement with Canterbury in 2021 and could earn up to 70% subject to meeting exploration expenditure requirements.

The project is well placed, being close to key infrastructure, including sealed roads, rail, grid power, gas pipelines, and a deep-water port at Gladstone. Briggs is one of Australia’s largest undeveloped copper projects, and it is located on freehold land used for cattle farming. And it has a major resource.

Briggs contains indicated and inferred resources (JORC 2012) of 932 million tonnes at 0.21% copper, 36 ppm molybdenum, and 0.6 g/t silver at a 0.15% copper cut-off. It is a porphyry deposit which means it is low-grade but high-volume. Briggs is is one of the few porphyry deposits in Australia, and one of the largest undeveloped examples of this important deposit class.

Metallurgical testwork and drilling has continued to show the potential for further growth. Other limitations of drilling such as only counting copper assays consistently above 0.1% to date also show the current Resource could be just the start. Moreover, it has also shown the potential to produce other metals, especially molybdenum which is also a conductor of electricity and heat, commonly used in steel alloys.

Copper is important, for good reason

As we’ve written about many times before, there is an increasingly growing gap between demand and supply. There are varying estimates of just how great the ‘Crunch’ will be, but they tend to be 20-35% within 5-10 years all based on varying supply and demand estimates.

It is true that the copper deficit right now is ‘modest’ with S&P expecting a 279,000/deficit this year, while some forecasts even suggest a surplus of a similar amount. However, the deficit is expected to emerge very quickly and if it is hardly the case that supply can be ‘turned on like a tap’, so the case for new supply now (in 2025) is compelling.

Copper is fundamental for many modern technologies such as solar panels, wind turbines, EVs, AI and data centers and modern grid infrastructure. This is in addition to technologies already sold en-masse in consumer and industrial markets, but demand for which will keep growing including refrigerators, air conditioners, computers, smartphones, washing machines and lighting.

Even if copper is only used in certain individual components, it can still be crucial – one example being heating elements in water boilers. To illustrate how important copper is, the average ‘copper accumulated stock-in-use per capita’(the typical cumulative copper in everything in a typical household) tends to be around 100kg. The growth in AI computing and data centre will require more copper – it can be up to 6% of a data centre’s capex.

Alma is needed

There are various forecasts of just how much demand will grow, but these forecasts all point in one direction. BHP believes that copper demand will grow by around 70% to 50Mt a year by 2050.

2050 may seem like a long time away, but growth is expected to occur annually, and there is a need for supply to come on the market in the coming years, and Briggs can offer this. Even in the last 30 years, there have been few large copper discoveries, but those that occur could be lucrative. Short-term supply challenges (driven by operational issues at major copper mines) are also expected to be aid growth in copper prices as well.

Briggs could become a long-term source of copper if the company can delineate a resource that can be economically extracted over a multi-decade mine life. All of the above factors will mean it will be more feasible and faster to bring into production than mines that do not possess those advantages.

The next steps facing Alma

Alma Metals recently completed a Scoping Study and has immediately progressed into a Preliminary Feasibility Study seeking to evaluate an aspirational 30 Mtpa open pit operation.

PFS activities will include:

•  Infill drilling to improve resource confidence,
• Metallurgical process flowsheet optimisation,
• Molybdenum circuit evaluation, and
• Coarse particle flotation technology evaluation.

We anticipate these will all inform the PFS, but they will also be catalysts in their own right especially the molybdenum circuit evaluation which has the potential to add significant value to the project.

The challenge for Alma will be to grow the portion of the Briggs’ MRE currently defined as Inferred to the Indicated and Measured categories. Currently 80% of the MRE is Inferred at a 0.15% cut-off. Our modelling of the project has shown that when the Inferred Resource is excluded, it makes an enormous difference to the valuation.

Completion of a Prefeasibility Study (PFS) will require conversion of the majority of the MRE to the Indicated category (+/- Measured). This scenario will be key to the company re-rating. It must be stressed that all categories must satisfy the requirement of,’ reasonable prospects for eventual economic extraction’, and so there is no suggestion made or implied that the current resource does not have reasonable prospects, but we cannot be as confident as we would be if that same resource was Indicated or Measured.

The company’s current exploration is aimed at growing the resource and increasing the level of confidence of existing resources. Drilling new targets not only identifies newer mineralisation but can also identify continuity between existing mineralisation identified.

The upcoming PFS should provide a specific NPV based on reasonable revenue and cost estimates, along with a JORC Resource dominated by Indicated +/- Measured resource categories. This will be crucial in giving investors an idea of how much it will cost to build a future mine, and the return investors could receive on their money.

Caravel is a good example to look at

Our friends at Pitt Street Research compared Alma with Caravel Minerals’ (ASX:CVV) namesake discovery. It has a Mineral Resource Estimate containing 3.03Mt of copper with 1.4Mt Cu in ore reserves. Caravel claims this is Australia’s largest undeveloped copper deposit and the fourth-largest copper discovery worldwide in the last decade.

The 2022 Pre-Feasibility Study showed pre-tax NPV (using a 7% discount rate) of A$1.5bn7 (US$980m) with an IRR of 18%8; the post-tax IRR was A$1.1bn. It showed $17,555m copper revenue over the life of mine using a US$4/lb price and US$0.72=A$1 exchange rate. All-in Sustaining costs were US$2.55/lb and estimated capex was A$1,584m. An update in 2023 to plant’s capacity and increased copper production led to the pre-tax NPV increasing to A$2.0bn and reduced the AISC from US$2.37 to US$2.07.

With a market cap of >A$130m, the progress Caravel has made (and its re-rating as it advanced from Scoping to PFS in 2021) is an indication of what Briggs could achieve. Like Briggs, Caravel is a porphyry-style deposit, conventional open-pit and has a similar processing flowsheet involving grinding and froth flotation. And even though Caravel’s current market capitalisation is behind its projected NPV, it is well ahead of Alma’s c. A$10m. The mere release of a PFS with an NPV in the hundreds of millions would be an event where it would not be unreasonable to expect Alma to re-rate from current levels.

Pitt Street found an eventual operation could have an NPV of over A$1bn. Of course, it is too early to ascribe any formal valuation to Alma in absence of a feasibility study, but this should give investors hope that there is potential here.

Of course, Briggs is realistically a few years away from production. But if it can progress through a PFS and upgrade its JORC Resource, we think there is scope for the company to re-rate. And if there is strong momentum in the copper market, this could be an added bonus.

Alma Metals is a research client of Pitt Street Research. Pitt Street directors own shares.