Small cap copper explorers with big potential

Takeovers at the top end of the copper resources sector have thinned opportunities for investors seeking exposure to a red-hot energy transition metal, but that simply means do what the big miners do when producing assets dry up – buy explorers.

BHP (ASX: BHP) buying OZ Minerals (ASX: OZL), followed by Glencore’s attempt to acquire Canada’s Teck Resources, are examples of the merger and acquisition (M&A) rush which has made copper producers prime targets.

But as the producers disappear and copper demand continues to rise, the big boys of mining will think small, and that means acquiring explorers in the same way they have been investing in another energy transition metal, nickel.

Iron ore billionaire Andrew Forrest’s acquisition of nickel miner Mincor was preceded by his takeover of Noront Resources, a Canadian explorer.

Meanwhile, BHP’s urge to grow its nickel business has seen it invest in Kabanga, an African explorer.

Spotlight on copper explorers

Those nickel examples offer a guide to small copper stocks which could be on the M&A list of big miners getting desperate to lock in future growth potential.

Stocks such as Coda Minerals (ASX: COD), could be a target, with its Elizabeth Creek project in South Australia.

Small cap explorers with big potential include Revolver Resources (ASX: RRR), and its Diane project in north Queensland, and Caravel Minerals (ASX: CVV) which is chasing a copper prize in WA’s wheatbelt.

Other coppers juniors being eyed for their prospectivity include QMines (ASX: QML), Navarre Minerals (ASX: NML), Cyprium (ASX: CYM), New World Resources (ASX: NWC) and Kingston Resources (ASX: KSN).

Potential copper ‘elephant’

But the company which could be of greatest interest to a major copper miner is Coda because it might have found a copper “elephant” in a location known to be the home of copper elephants, South Australia.

A star stock-market performer in 2021 when it rocketed from $0.36 to $1.46 Coda has been struggling to recapture that moment – limping along this week at around $0.22 which values the company at a lowly $31.2 million.

Not even the release last month of a scoping study which demonstrated a viable plan to start mining a portion of what Coda has discovered revived the share price, even with a glowing report from Shaw and Partners which tipped a future share price of $0.90.

However, a new, and technically heavy report, released by Coda last week could change the way exploration professionals such as those working at BHP and Glencore view the potential of Coda’s Elizabeth Creek project.

Location, location, location

Any investor with a modest understanding of the property market will quickly recognise that Coda has the three features which drive real estate values: location, location and location.

In the case of Elizabeth Creek, it is close to the centre of the Stuart Shelf, a major geological feature which is home to BHP’s Australian copper flagship, Olympic Dam.

Perhaps, more importantly, Coda’s plum asset has two of BHP’s emerging mines almost on the border of its tenements, Oak Dam West, 100km to the north, and the Carrapateena (started by OZ but now a BHP asset) 50km to the east.

It’s the location which ticks the first box for Coda, but Elizabeth Creek’s complex geology has confused investors because it contains copper in two different layers, a shale-hosted copper and cobalt structure called Emmie Bluff and a deeper iron oxide copper gold (IOCG) structure called Emmie Deeps.

The second box ticked is a plan to start mining Emmie Bluff, which was demonstrated in last month’s scoping study to have an initial mine life of 14 years, yielding 25,000 tonnes of copper annually plus 1,000t of cobalt.

A pre-production capital cost estimate of $277 million will be offset slightly by generating a quick $80 million from mining the near surface MG14 orebody.

Similar to Olympic Dam

Interesting, as a starter project the long-term value in Coda’s ground appears to be the same type of mineralisation mined by BHP at Olympic Dam, IOCG, and it’s IOCG which is the third box that Coda has ticked.

Until last week, the near-surface shale-hosted copper and the deeper IOCG material were seen as two separate structures but that might have changed thanks to the use of the latest geophysical tool called Ambient Noise Tomography (ANT), a form of seismic surveying common in oil exploration.

Coda said the recently completed ANT survey had outlined a link between the two known copper structures at Elizabeth Creek and revealed a large scale north-to-south trending structure which could cross Coda’s border into the BHP tenement containing its Oak Dam discovery.

Like Olympic Dam, Emmie Deeps has been slow to reveal its potential thanks to the depth of the IOCG material which lies between 700m and 1,000m below surface.

But it’s down there where Coda has encountered thick mineralised intersections and rich copper grades of up to the 4.9% reported two years ago and the primary reason the stock ran to that price peak of $1.46.

Older readers following Coda’s work cannot help but be reminded of the similarities of the Olympic Dam discovery in 1975 with the location for drilling chosen by applying a geological theory that the Stuart Shelf was mineralised, at depth.

It took 13 years for the Olympic Dam discovery to become a mine (in 1988) in what proved to be a financial stretch for its discoverers, Western Mining and its partner at the time, the oil producer, BP.

World class copper province

Today, the IOCG orebodies of the Stuart Shelf are being mastered and South Australia is achieving its goal of being a world class copper province.

That history and what appears to be common geology is why Coda’s work at Elizabeth is being closely followed by the world’s big copper miners such as near-neighbour BHP and arch-rival Glencore which might have the inside running.

In a 24 March scoping study presentation, Coda thanked its technical advisers, ranging from Como Engineers and CSA Global to Glencore Technology – a technical arm of the big miner which owns the historic Mt Isa copper mines in Queensland and markets ore processing technology developed at Mt Isa.

In other words, Coda has BHP on the boundary of its Elizabeth Creek copper project and Glencore on the inside – which is a double serving of food for thought.