DJ Carmichael Research Note has some interesting points . San...

DJ Carmichael Research Note has some interesting points .

San Antonio

• The San Antonio copper-gold project lies 20km east of the Productora Project at an altitude of just 800m. It is a relatively advanced exploration stage project with 9 historic drill holes and comprises 12 exploitation leases over an area of 1,566Ha. However, the project has been in private hands for several decades and modern exploration techniques have not been applied to the project.
• The mine infrastructure includes underground mine development over a strike length of 200m at to a depth of 130m. Approximately 2Mt of ore has been produced from the mine at an average grade of 2% copper and 0.3g/t gold with a 15g/t silver credit.
• Copper mineralisation is hosted in a moderately dipping sandstone and with a limestone/andesite unit with skarn alteration and close to a granitic contact to the east.
• Mineralisation is hosted within the andesites at widths between 7m and 30m (average 10m) in true width and occurs as chalcopyrite, bornite, pyrrhotite and magnetite.
• The agreement is for a 90% interest and has been made in HCH’s 100% subsidiary Sociedad Minera Frontera SpA (Frontera) and is not included in the Productora agreement with CMP/CAP.
• Terms involve the payment of US$300,000 in 36months and a final payment of US$6.7min 48 months. No payments or commitments are required for the first 3 years.
• Execution is subject to favourable legal due diligence and approval of final terms by the HCH Board.

In Conclusion

This should be received well by shareholders. Any additional of high grade material to the overall feed for Productora would materially lift the head grade and production profile. As with any operation, satellite operations can be developed for just incremental capex, where the hurdles for exploitation are much lower.

As an example, if you had base production from Productora of, say, 10Mt at an average head grade of 0.5% Cu, by adding just 1Mt at a grade of 2.5% would increase the head grade by 36%, to 0.68g/t. There are also the additional gold and silver credits to add to this.

From the example above, we can see how important the addition of grade would be to the overall economics of Productora.

Interestingly, this option, and indeed the whole satellite strategy is being conducted in a 100% subsidiary of HCH and therefore is not subject to the JV agreements with CMP/CAP.  This could tip some leverage back into HCH’s favour with respect to CMP. We will have to see how this plays out but our view is that a successful execution of this strategy could make a very significant impact and arguably, thrust HCH into the most desirable and significant potential copper producer on the ASX. At the production rate of 66,000 tonnes of copper, as envisaged in the PFS, an additional 36% in head grade would translate into production of 90,000 tonnes. Second only to Oz Minerals (OZL) on the ASX.

Head of Research
Paul Adams