Monsters of Rock: The Big Australian becomes the Big Argentine

Large cap mining news headlined by BHP, Fortescue and IGO, plus we have some broker updates from Jarden.

Josh Chiat

7 min read

July 30, 2024 - 5:26PM

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Argentina – big dinosaurs, big copper, little footballers, and now Big Australians. Pic: Getty Images

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BHP makes big copper deal in Argentina
IGO shows Greenbushes in full flight, nickel and guidance not so great though
Jarden's takes on IGO, Liontown and Syrah, Perseus reports, oh, and FMG crumbles on $1.9bn block trade

Not since the skeleton Argentinosaurus and Lionel Messi has a find in Argentina generated such heat, and now the Big Australian has put its enormous foot on one of the world's largest new copper discoveries in the home of the World Cup and Copa America campeones.

BHP (ASX:BHP) has partnered with Lundin Mining to announced the takeover of Filo Corp, a TSX-listed explorer from the Lundin house which holds the massive Filo del Sol project in Argentina's Andes.

The deal comes two years after the Big Australian put a foot in the door via a 5% equity investment in Filo priced at US$80m, with BHP becoming the Big Argentina today by forking out US$2.1bn ($3.2bn) for half of Filo and half of Lundin's Josemaria project 10km away.

Lundin is acquiring the other half of Filo, taking the takeover win for its investors to C$4.1bn or C$33 per share, a 12.2% premium to its last close (though Lundin was already a 30% holder).

BHP was down slightly today, off 1.2% after making its first copper play since the aborted takeover of Anglo American.

The materials sector generally collapsed 1.93%, though BHP could hardly be blamed. A $1.9bn selldown by an insto in Fortescue (ASX:FMG) overnight lopped 10% off the value of Andrew Forrest's iron ore miner, making up a vast proportion of those losses.

Filo rational

Back to Filo and BHP's Canadian born CEO Mike Henry said the acquisition aligned with its strategy to acquire 'attractive early-stage copper projects'.

It comes after Rex Minerals (ASX:RXM) boss Richard Lauffman accused the giant of being a 'risk management company' unprepared to invest in new sources of supply after it stayed on the sidelines of the bidding process for its 42,000tpa Hillside project in South Australia, located not far from its Olympic Dam operations in the Aussie State.

"This transaction aligns with BHP’s strategy to acquire attractive early-stage copper projects and enter into strategic partnerships with parties where complementary skills and experience can deliver long-term economic and social value," Henry said of the deal.

"The joint venture with Lundin Mining will advance the development of the Vicuña district, which offers the potential to become a major contributor to the economy of Argentina for decades to come.

"At the same time, by partnering with Lundin Mining, BHP is continuing to invest in the growth of a robust mining sector in Canada.”

RBC's Kaan Peker, who has a sector perform rating an $45 PT on BHP, said the transaction was 'on strategy', expecting the transaction to clear with BHP, Lundin and management holding around 50% of Filo's shares between them.

RBC thinks Josemaria will produce 136,000t of copper, 230,000oz of gold and 1.16Moz of silver annually over 19 years at a capex of US$4.5bn and all-in sustaining costs of US$0.76/lb, with RBC ascribing a US$2.5bn valuation to the asset, expected to be up and running from 2027.

It also thinks Filo del Sol will be producing by 2027 at a capex of C$1.8bn, producing 62,000t copper, 147,000oz gold and 8Moz silver on average over 13 years at a C1 cost of US$1.67/lb, using only its reserves of 260Mt at 0.39% Cu, 0.34g/t Au and 16g/t Ag.

"The key will be to increase the size of the Filo sulphide ore Reserves. Prior estimates by Filo management have indicated that this could be between 1.2-1.6Bt at 0.7-1.0% CuEq; however, with the ongoing drilling success, we expect a globally significant sulphide resource to could be unveiled (40km of drilling with 9 rigs are expected over the year)," Peker said.

"The development of Josemaria and Filo will likely be a combined multi-stage project, in time. Josemaria will likely be progressed first, followed by the Filo oxides and then the Filo sulphides.

"Consolidating the two projects gives BHP access to a medium-large copper growth, while aligning with their copper growth strategy. In our view, BHP brings scale development know-how considering its experience with Escondida and the expected infrastructure required for the two projects. "

IGO in focus

Greenbushes nearly tripled sales quarter on quarter for IGO (ASX:IGO), with spodumene sales from the world's largest lithium mine lifting from 183,000t in the March quarter to 530,000t in June.

That came with production lifting 19% to 332,000t to hit the upper end of updated guidance (1.3-1.4Mt) at 1.383Mt, with sales revenues rising 187% to $822m and EBITDA up 164% to $558m.

Fourth quarter spod pricing came in higher than competitor Pilbara Minerals and lower than MinRes at US$1020/t, but cash costs which fell 12% to $338/t, showed just how spectacular the asset is.

Even in a subdued lithium market, Greenbushes delivered EBITDA margins across FY24 of 85% (though that includes the much stronger September and December quarters of 2023).

From a financial point of view it was a strong quarter from IGO, with underlying free cash flow up 154% to $201m and underlying EBITDA up $103m to $88m, net cash 70% higher at $468m and nickel production also 16% better at 7600t.

Profits will likely be eaten by a near $300m impairment on its nickel exploration assets, though IGO said the non-cash measure would not impact EBITDA.

Its lithium hydroxide JV in Kwinana with fellow Greenbushes owner and TLEA partner Tianqi continues to be a head-scratcher, generating EBITDA losses of $18.2m in the quarter and $356,5m for the year, despite a 39% QoQ increase in production to 1331t (89% battery grade).

FY25 guidance has also been delivered, with the Nova nickel mine expected to slide from 20,806t nickel, 9,922t copper and 735t cobalt at costs of $3.99/lb last year to 16,000-18,000t nickel, 6250-7250t copper and 550-650t cobalt at $4.80-5.80/lb in 2025.

Mining will likely end early at the Forrestania mines after seismic events at the Spotted Quoll deposit.

Guidance for Greenbushes is largely in line with FY24 results, with the operating entity Talison (owned 49% by Albemarle and 51% by the JV of Tianqi and IGO) expecting to produce 1.35-1.55Mt of spod at costs of $320-380/t and capex of $850-950m. There's no guidance for the hydroxide plant, where a major shutdown is expected in the second quarter of the financial year.

There are a range of takes on IGO from the analysts. One, Jarden's Jon Bishop, was bullish on its final dividend on the back of the results.

He has a buy rating and $8.53 PT on the stock.

"The recent c$159m in dividends from the TLEA JV could help to plump the final dividend arithmetically (FY result on Aug 30 )," Bishop, Ben Lyons and Adam Bennett wrote.

"The TLEA dividend was larger than our forecast and hence total projected liquidity on our numbers will now exceed $1bn and could theoretically double our (last pub.) forecast final dividend of 5cps FF (VA consensus – 7cps final)."

Jarden likes the cost-curve positioning of the Greenbushes site, where optimisation is occurring in line with the construction of a third processing plant called CGP3.

"Optimisation of GB's operation should be a feature of upcoming Q'lies and serve to embed GB in the far LHS of the cost curve," Bishop et. al. wrote.

"It should also serve to allude to a more aligned JV which remains a key market concern though we note the wider production guidance range. IGO is a defensive exposure to lithium price recovery with FCF yields that should support solid returns to shareholders."

LTR and a brutal market

Bishop and Jarden's latest take on Liontown Resources (ASX:LTR), which lovely enough follows its pattern of naming reports after songs by Colin Hay's legendary Aussie band Men at Work, continues to focus on the ramp up of Kathleen Valley.

"In the context of weak lithium prices, ramp execution to feasibility expectations (15 months to steady state, c6% grades and 78% recoveries) is critical on the one half of the ledger, given the other half being the operating cost structure of the operation being unclear," Bishop et. al. said.

"For now, the company is not prepared to provide updated guidance on operating costs until the KV operation is further advanced through the commissioning phase.

"We view this to be critical to understanding whether, and under what pricing and steady-state operating scenarios, the US$250m (plus the cUS$50m in capitalised interest we forecast) can be retired."

Jarden's underweight LTR, with a $1 PT. Bishop's colleague Ben Lyons is more bullish on the heavily sold Syrah Resources (ASX:SYR), where he has an overweight rating and 66c PT (144% projected return).

But that's down 5c after what he described as 'brutal market conditions' in the graphite space.

"The aggressive pricing tactics on display, combined with the ability to withhold supply through export controls, highlight the ability of China to control the lithium-ion battery to the disadvantage of others, and the critical importance of establishing ex-China supply chains," Lyons and co. said.

"In response to the price signals, SYR did not transact with the Chinese market during JQ24, with the 10kt of sales (lowest volumes since MQ21) all directed to ex-China markets.

"Against the US$450-480/t FOB China, SYR achieved a healthy price realisation of US$735/t for the quarter, with the 25% of coarse flake sales (exceeding US$1,000/t late in the quarter) a premium to the fines price."

Syrah is in cash preservation mode, according to Jarden, after producing 24,000t in its latest campaign at the Balama mine in Mozambique and boasting US$82m in its account at the end of June.

Jarden expects CY24 EBITDA losses for SYR of US$70m, and slimmer EBITDA gains of US$8m (down from US$22m previously) in 2025.

"Acknowledging the ongoing weak market dynamics, we have reduced forecast CY24 Balama NG sales to 64kt (from 103kt) and CY25 sales to 187kt (from 236kt)," the analysts said.

"We have similarly reduced forecast CY24 Vidalia AAM production to 2kt (from 2.8kt) and CY25 AAM to 9.4kt (from 10.6kt), in recognition of management commentary about reducing working capital until customer qualification progresses."

Lyons and his team said Syrah still provides 'unique equity exposure'.

"Simply put, however, if the auto industry is serious about developing an ex-China AAM supply chain, ongoing regulatory assistance is required to counter Chinese overcapacity," they believe.

Perseus Mining (ASX:PRU) shares fell over 4% despite hitting guidance for FY24 and the June half, with higher costs forecast through the second half of the year (220,000-260,000oz at US$1230-1330/oz for H1 FY25 vs 248,400oz at US$1130/oz for H2 FY24.)

PRU's FY24 production of 509,977oz came at costs of US$1053oz, in the middle of its guidance range, while H2 costs were below its US$1180-1340/oz guidance range.