Hillgrove Resources

Hillgrove Resources (ASX:HGO) is developing the Kanmantoo Underground in South Australia which is a fully funded and permitted copper / gold mine which is on track to produce first copper in early 2024.  In addition, Hillgrove offers an exploration pipeline within 5km of the existing processing and tailings storage infrastructure which enables relatively fast and low-cost conversion from exploration to cash flow, and exploring larger scale porphyry opportunities in an area regarded as one of the most prospective porphyry regions in Australia.    

The business has no debt and expects to be free cash flow generative in early 2024.  Exploration is continuing both on lease and near mine with view to expand by the Kanmantoo mine life and increase annual copper / gold production.  

Kanmantoo Underground

The Kanmantoo Underground is a near-term, low capital copper production opportunity in a Tier 1 jurisdiction that enjoys strong community support.  The Kanmantoo Underground is a fully permitted operation with all processing and tailings storage infrastructure is in place, and ore lodes within 40m of the decline portal which facilitate a fast low capex start-up.

The Stage 1 underground is forecast to generate over A$200m in free cash flow (post-tax) over the first four years.  This mine plan includes only two lodes within the permitted lease, both of which remain open at depth and along strike.  In addition, there are a further 7 lodes that were either drilled or mined as part of the open pit operations which are being actively drilled to expand mine life and increase annual copper / gold production profile.  The exploration strike rate is exceptional, with 143 economic intersections generated from only 122 drill holes in the past 3 years (over 100% strike rate!) and each exploration program resulting in material increases in the mineral resource base.  There is a high degree of confidence that further drilling will result in additional economic intercepts and further resource growth.

The project is extremely well leveraged to copper price.  The orebody geometry is characterised by a high grade core surrounded by a lower grade halo.  The stopes terminate in the lower grade mineralisation.  As price rises, Hillgrove can quickly respond by increasing copper production for low incremental costs by simply widening the stopes.  Unique to Kanmantoo, the mill is only 40% utilised in the current plan, which enables the additional copper to be produced without displacing any high grade ore, essentially producing more copper into a higher price environment for low incremental cost.

Having no debt de-risks the project, enabling the requisite flexibility required in start-up without looming debt repayments influencing operational decisions.  Furthermore, having no debt covenants also reduces restrictions on distributing dividends which brings forward the timing of potential dividends, an important consideration given Hillgrove has $17.6m of franking credits which would enable the distribution of approximately $50m in fully franked dividends.

Exploration

An Exploration Target for the Kanmantoo Underground of 10-20Mt, 0.9-1.3%Cu, 0.1-0.3 g/t Au provides opportunity to increase mineable inventory with further drilling.

In addition to the Kanmantoo Underground, Hillgrove is actively exploring three advanced exploration targets within 5 km of the processing plant, and a further 5,652km2 in South Australia’s southeast targeting large scale deposits within the highly prospective USGS and GA Porphyry Tract which includes the Stavely Cu-Au-Mo Porphyry.