Why investors are excited about Chalice’s Gonneville/Julimar project once again and if they’re getting ahead of themselves

Chalice Mining (ASX:CHN) shares climbed over 10% yesterday after an announcement declaring a ‘major metallurgical breakthrough at Gonneville’. Investors liked the look of this, but is this just a temporary reprieve from some of their worries, or is it a game-changer?

Gonneville/Julimar: The discovery of the decade

Gonneville is a deposit at Chalice’s Julimar project, which lies an hour from Perth in the Julimar national park. When it was discovered in 2020, it was the largest nickel sulphide discovery anywhere in the world in 2 decades and the largest PGE (Platinum Group elements) discovery in Australian history.

According to the most recent Resource – outlined in July 2023, it has a resource of 560Mt @ 0.54% nickel or ~1.7g/t palladium equivalent. 55% of this is Measured and Indicated with the balance Inferred. This equates to 16Moz of 3E (Palladium, Platinum and Gold combined), 860kt nickel, 520kt copper and 83kt of cobalt. This is equivalent to 3Mt of nickel equivalent or 30Moz of palladium equivalent.

Investors re-rated the company from under $40m to over $1.5bn in under 2 years, but shares retreated to a market cap of $500m. The bear market for battery metals has not helped, but investors seem skeptical the project can be realised – or perhaps they just cannot wait.

Gonneville could cost $1.6-$2.3bn to turn into an operating mine and an FID will only be made in 2026. Construction could take up to 3 years after that. There are other concerns about the project such as local NIMBYs although the cost and timeline are the biggest concerns.

Hope?

Chalice is completing a Pre-Feasibility Study (PFS) and expects to release it in the middle of this year. In this context, the company conducted testwork and has released results to the market.

The key point is that ‘saleable’, smelter-grade flotation concentrates could be produced across the entire sulphide resource, rather than just using one or two drill intersections. Copper-PGE-Gold concentrate graded 22-26% copper and 45-60g/t 3E (Palladium, Platinum and Gold), whilst Nickel-Copper-PGE concentrate graded 7.5-8.7% nickel, 0.8% cobalt and 18-20g/t 3E.

Additionally the company reported that CIL leaching recovered additional palladium and gold from the flotation tails. This results in significant reduced reagent consumption and operating costs relative to the 2023 feasibility study. This means that:

• The company will not need a hydro-metallurgical process for the nickel concentrate, and
• CIL leach is expected to attract a 10% tax offset under the recently legislated Critical Minerals Production Tax Incentive.

As a consequence…higher profit margins. Just how much? We’ll see in the PFS. The company has not assume a material change in offtake terms, although it has already had interest from global partners.

What investors would’ve been happy about as well is that the company has $90m in cash.

The verdict on Chalice

Yesterday’s news was good for Chalice. We know this will be included in the PFS and it could make a significant difference to the key financial metrics of Gonneville – the NPV and IRR particularly.

However, the key trait in determining Gonneville’s returns will be commodity prices and their recovery…not necessarily to 2022 levels, but to realistic 2020-21 levels when companies like Liontown completed studies and contemplated these levels for the long-term.

This only goes to show that the journey of an ASX resources junior with a project it aspires to turn into a mine does not end once it has a confirmed study.

It costs time and money to turn it into a mine and there are multiple ways to produce. Companies need to determine what is most optimal for them and their shareholders. Chalice is 5 years away from discovering Gonneville, but is at least another year away from making a Final Investment Decision, and four from having an operating mine.

If you want to invest in this space (i.e. the resources development space), a lot of time and patience is required. But of course, Chalice’s discovery in its PFS work is no doubt good news and will help its cause in getting investors to pay attention to Gonneville once again.

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