The problem with hunting elephants, which is the aim of copper hopeful Coda Minerals (ASX: COD), is knowing what to do with one if you catch it, though that’s a future problem for Coda which some brokers rate as Australia’s most undervalued explorer.
Coda’s elephant hunting, which is mining slang for trying to make a significant discovery on a small budget, is taking place in a location known for hosting big beasts, the Stuart Shelf of South Australia, home to BHP’s (ASX: BHP) world-class Olympic Dam mine and other copper projects.
The latest drilling by Coda at its Emmie Bluff Deeps project has rekindled interest in the stock which first caught the attention of investors in June when it reported a deep intersection of iron oxide copper gold (IOCG) mineralisation, one of the main targets and a globally important source of copper.
In a matter of days, Coda shares rocketed up by more than 380% from $0.36 to $1.75, a rise which encouraged management to raise fresh capital to accelerate drilling. Alhough, the extra shares and a lack of fresh assays saw the stock slide back to $0.68 late last month.
It was game on again for Coda earlier this week when the company reported a fresh batch of eye-catching drill results, including 13 metres at 3.46% copper plus 0.64 grams of gold per tonne. Thicker intersections of 45m and 55m of copper rich material was also reported at up to 2.17% copper.
The latest results saw Coda shares rise by $0.15 to $1 before once again running out of puff with the price retreating to around $0.91, a level which values the small company with what could be an elephant-sized discovery at an untaxing $90 million.
Mineralisation at great depths
One reason for Coda’s relatively poor stock market performance is that the IOCG mineralisation at Emmie Bluff Deeps is indeed very deep, with that 13m at 3.46% copper starting at 902m.
Digging a mine down to that depth is going to cost a small fortune, though the quality of the ore which includes prized bornite (or peacock ore) and the better-known chalcopyrite will make the exercise worthwhile one day – for someone, if not Coda.
And in that last comment lies perhaps the most attractive reason for an investor taking a look at Coda because it is a small company holding an elephant by the tail (or tiger if you prefer) and could become a tasty morsel for one of the mega miners on the prowl for more copper, including Coda’s Emmie Bluff Deeps neighbour, BHP.
More drilling assays expected in coming days
News flow from Coda is accelerating with more assays from the latest round of drilling expected to be released in the next few days, along with a maiden inferred resource which the stockbroking firm Shaw and Partners expects to be around 800,000 tonnes of copper equivalent (copper plus gold) in ore grading 1.6% copper equivalent.
If correct, Shaw’s estimate represents an almost three-fold increase on an already established copper resource in the tenement package in which Coda has a 70% stake (rising to 75%) with Torrens Mining the minor partner.
Earlier exploration established a resource of 280,000t of copper equivalent, mainly in shallower and lower grade copper deposits.
Coda chief executive officer Chris Stevens said there are currently two drilling rigs on site with each new hole taking three to four weeks to complete due to the depth of the IOCG structure.
“Mineralisation at Emmie Bluff Deeps remains essentially open in all directions,” Mr Stevens said.
“The next hole will target an extension of the mineralisation a further 250m to the southeast.”
Shaw, which has only just started researching Coda, said the latest drilling campaign had “materially extended” the known IOCG mineralisation, adding that over the past year the company had refined and recalibrated its exploration technique with the result being drill-backed success.
The broker, in what is one of the most bullish price tips on any ASX-listed explorer, reckons Coda shares are heading for $2.30, more than 150% above last sales at $0.91 in what would effectively be a re-run of last June’s explosive increase.
The combination of copper, which is the hottest of the base metals thanks to its role in the electrification of everything, in a tier one location of South Australia is one of the reasons Shaw has become excited about Coda.
The other reasons are the imminent release of the maiden resource, ongoing drilling and assay results, drilling the prospective Elaine target in the south of Coda’s tenements early next year, and the start of drilling at another copper prospect, Cameron River, in north-west Queensland.
Funding an ambitious exploration program like that proposed by Coda will be expensive, especially the deep holes planned for Emmie Bluff Deeps.
The cash burn in the September quarter consumed $3.9 million with $17.8 million in the bank on 30 September, a number understood to have shrunk to around $15 million today with a fresh round of fundraising highly likely in the new year.
Attracting the attention of bigger copper miners
Coda’s exploration spend is a heavy commitment for a small company but the results are supporting the effort and will also be attracting the attention of bigger copper-hungry miners keen for a slice of the Stuart Shelf.
Early signs of position taking can be found on Coda’s share register, which is topped by a Chinese iron ore miner Angang Group which has a 12.2% stake (but no board representation) and reflects a residual stake connected to Coda’s parent, the ill-fated Western Australian magnetite iron ore producer Gindalbie Metals.
Moving up the register is specialist Sydney-based investment manager, Regal Funds Management which last month lifted its stake from 7.37% to 8.44%.
The risks associated with grass roots exploration are always high but in terms of location and commodity Coda is shaping up as a class act with high-grade (albeit deep) copper mineralisation in a prime address.
BHP’s Olympic Dam mine is 114km north and its Oak Dam project 16km north-east, with OZ Minerals’ (ASX: OZL) Carrapateena project 40km to the east – and it’s a dead set certainty that BHP and OZ are tracking every report and drill rig movement on Coda’s property.
Coda’s immediate challenge is to grow its copper resource. The longer challenge for the small stock will be independent, and that could mean dealing with an offer too good to refuse.