Qmines [ASX: QML]
Metals & Mining
Australia’s next Copper and Gold producer
We initiate coverage on QMines with a current fair valuation of $0.157, representing a 138% expected upside from the current share price of $0.066. The company is a Queensland-based copper-gold explorer with resources located near Rockhampton. QMines owns several deposits and prospects, with its flagship asset being the Mt Chalmers project, followed by Develin Creek. QMines’ JORC-compliant defined Mineral Resource Estimate (MRE) across all its assets is 15.1Mt @ 1.3% CuEq for 195,800t CuEq. As per its recently concluded PFS, the Mt Chalmers project is positioned at the top of its comparable ASXlisted copper explorer peer group across a number of investment return indicators. QMines’ management exhibits a record of executing on stated goals, with the Company delivering 6 resource upgrades since its IPO in 2021 and a likely 7th one to come later in 2024. This record provides assurance for the delivery of further goals, such as enlarging the scale of the Mt Chalmers project by incorporating resources from its many other assets, particularly Develin Creek.
Mt Chalmers Project – Best-in-Class Investment Returns
Mt Chalmers PFS investment metrics include a Pretax NPV of A$373m, an IRR of 54%, a payback of 1.84 years and a cumulative EBITDA of A$828m over a currently planned 10.4-year life. The project is expected to produce 105,000 copper equivalent tonnes, with a low C1 processing cost of just US$2.14/lb CuEq and a low initial capex outlay of A$191m. These strong metrics lead to QMines performing at the top of its copper explorer peer set, composed of explorers that have also conducted feasibility studies. There are many causes for this, from being favourably exposed to both copper and gold, effectively being a brownfield project and being well connected to infrastructure, given the proximity to Rockhampton. These metrics are set to become even better if, as is expected, QMines brings in additional scale to Mt Chalmers.
Prospects tied to favourable copper and gold markets
QMines’ prospects are closely tied to the prospects of copper and, secondarily, gold. Each of these metals is supported by durable tailwinds. The copper market is subject to a material, looming supply side deficit due to a lack of quality new deposits being found, such as QMines’ and then post-discovery taking a long time to reach production. All the objective metrics thus far lead to the conclusion that QMines is on its way to quickly entering the production stage, leading to the prospect of attractive shareholder returns.
Valuation range of A$0.131-$0.182 per share
We value QMines at A$0.131per share in a Base-Case scenario and A$0.182per share in an Upside-case scenario. We undertake a sum-of-parts approach to value QMines, incorporating a high degree of conservativeness to each pivotal assumption, leading us to confidently formulate an attractive investment thesis.