VXR, page-10

Hartleys initiated coverage yesterday.
Value SS NPV12 $244m and heavily diluted price target 48cps (after raising construction equity).


Sulphur Springs; WA’s next base metals mine
Venturex Resources Limited (VXR) is developing the Sulphur Springs Copper-Zinc Project in WA’s Pilbara and is soon to release a DFS, which could see the project in operation as early as mid-2020. Under new management and a renewed focus on costs, the Company is looking to upscale the project from the 1Mtpa Value Engineering Study (VES) released in 2017, to a larger 1.25Mtpa offering, all while reducing costs. We expect the pre-production capex (previously A$166M) to come down in the DFS given VXR has already indicated a saving of $19M through a number of cost cutting measures, which include the purchase of a second-hand accommodation camp and the leasing of equipment instead of purchase. The largest cost saving was the accommodation camp, which reduced by A$12.9m through the purchase of a camp. Increasing the plant size is expected to cost A$4M.

Upscaling the VES
The VES for Sulphur Springs focussed on a zinc dominated operation, but given the revenue split, VXR is now looking at a copper (54%) dominated development with zinc (45%) and silver (1%) by-products. The VES used a mining inventory of 11.7Mt @ 1.4% Cu, 3.6% Zn & 15g/t Ag to produce 12ktpa Cu and 32ktpa Zn in recoverable metal in concentrates over a 12-year life of mine (LOM) through a base case 1Mtpa plant. We have assumed the same mine inventory in our model and scaled production for a 1.25Mtpa (as expected in the upcoming DFS), to recover 15ktpa Cu and 42ktpa Zn over a smaller 9.5-year LOM. Given recent drilling undertaken by VXR, the reserve may increase and thus give a larger mine inventory. The VES estimated pre-production capex of A$166M for plant, mine development and infrastructure.  We model pre-production capex to be A$160M on account of the recent cost saving initiatives. Operating costs were to average $120/t over the LOM in the VES. We model $125/t and await release of the DFS to update.

Successful processing of supergene ore is key early on
We expect the project will extract all 600kt of near-surface supergene ore in year 1 of operations. Recent test work indicates that a 2.6% Cu feed grade can achieve a 16% Cu conc. with an 88% recovery in the supergene material. Given the proposed floatation of supergene ore is unconventional, we see risk in this and model lower and recoveries (80%) in year 1 but once this hurdle is cleared, expect relatively benign metallurgy for the remaining LOM. This risk could be mitigated through blending but this would delay cashflow.

Initiate coverage with a Speculative Buy
VXR appears to be severely undervalued and has perhaps slipped off investors’ radars given Sulphur Springs has been bandied around for the best part of a decade. However, under new management and a very supportive major shareholder in Northern Star Resources (NST) ~19%, the project has the makings of an excellent copper-zinc story and we look forward to a new DFS in the coming weeks. We model free cashflow generation to average A$60Mpa over 9 years and initial funding of $160M to be helped along by NST. Sulphur Springs could rival the likes of Nifty in terms of annual CuEq production (30ktpa CuEq). We initiate coverage of VXR with a fully diluted NAV of 48cps and a 12-month price target of 42cps. We value VXR at 54cps at current spot prices.