Should I buy Chalice Mining shares in 2024?

Should I buy Chalice Mining shares in 2024? We’ll seek to address this question, both for those familiar with the company and those less so.

Chalice Mining (ASX:CHN) owns the Julimar PGE-nickel deposit that lies an hour out of Perth. The company has never looked back since it first discovered the deposit and scratched the surface of its potential, given its resources, convenient location and the perfect timing of the discovery amidst the push for decarbonisation.

Thе Gеnеsis of a Nеw Exploration Era

Julimar, or specifically the Gonneville prospect at the project, was the largest nickel sulphide discovery anywhere in the world in 2 decades and the largest PGE (Platinum Group elements) discovery in Australian history. And keep in mind that was the maiden Resource 2 years ago!

As of 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.

Close to Perth

As if this was not good enough, this project lies barely an hour from Perth. So, there’s no need for FIFO infrastructure – workers can go home each night! And there could be even more to come. Keep in mind the resource is just ~2km of a broader >30km long Julimar complex.

The discovery comes at a perfect time with the Australian government (and Western allies) keen for critical minerals such as Palladium, Platinum, Nickel and cobalt. They are all important for emerging decarbonisation technologies such as electric vehicles, hydrogen, energy storage and semiconductors, just to name a few.

So why have Chalice Mining shares gone down?

The key issue has been that it could cost $1.6-$2.3bn to turn into an operating mine and this is why shares fell this year. The price tag will depend on the output, 15m tonnes a year would lead to the lower figure while 30m tonnes a year would lead to the higher figure.

Chalice also revealed that it would not make a Final Investment Decision until 2026 and first production may not occur until 2029.

No PFS just yet

Investors are not just worried about the price tag – although if the deposit is as good as it seems, there shouldn’t be a problem. They also fear the substantial equity dilution and/or debt burden that could occur. And it is also less likely now that it will be acquired any time soon as some investors had hoped for.

On top of it, the company hasn’t had the smoothest run so far as environmental approvals and local NIMBYs are concerned. And keep in mind too that it doesn’t even have a Preliminary Feasibility Study (PFS) out right now.

Should I buy Chalice Mining shares?

It is difficult to give a yes or no answer given the state of the company right now. It is less riskier than your typical explorer, but more risky than a company that has entered production or is about to.

We wouldn’t give an outright no, but are uncomfortable to give an outright yes because it is difficult to see a catalyst that would lead to it regaining lost ground – at least, a catalyst that would occur in the next 12 months. Perhaps maybe M&A activity, but this is no certainty. As we noted above, the FID is not expected until 2026 and first production is not for another 3 years. A potential PFS is likely closer, but still several months away.

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Takеaways

Chalice Mining has got a monster project, there is no doubt about that. However, that does not mean shares are a buy right now. There are catalysts coming, don’t get us wrong, but they are too far away for most investors without the patience for short-term fluctuations.