Time to take a seat for the next move up in Chesterfield
“…With a fully-funded exploration programme ahead and good long term prospects for its core market, the winds seem set fair for Chesterfield in 2021…”
With a busy work programme ahead and the prospect of a prolonged copper bull market the stars seem aligned for popular small-cap mining stock Chesterfield Resources (LON:CHF).
Since listing in 2018 Chesterfield has accumulated a portfolio of 100pc-owned licences covering 94 sq km in Cyprus, making it the island’s largest minerals rights holder. The company’s licences cover part of the dramatic Troodos Mountain range that runs across the island’s southern spine: 51.1 sq km at Troodos West, with a further 6.5 km2 under application; 12.5 sq km at Troodos North; and 30.6 sq km at Discovery South.
Revisiting Cyprus’s ancient mines
Chesterfield, run by a technical team of senior geologists with backgrounds in First Quantum, Rio Tinto and Lundin Mining, is bringing modern mining technology to some of the islands most ancient mines. Copper mining in Cyprus dates back to the 4th millennium BC – indeed the island takes its name from the Greek word for copper, Kúpros. But there has been little exploration on the island since the Turkish invasion of northern Cyprus in 1974.
Over the past two years Chesterfield has been running remote sensing, mapping, archive, geochemical and geophysics programmes to uncover Volcanognic Massive Sulphide (VMS) deposits that older exploration techniques had not been able to access. The company’s objective is to identify a concentration of prospective deposits to serve as the foundation for a mining project with a centralised planning unit.
Chesterfield is looking for gold as well as copper: gold was found on the island during the Cyprus mining industry’s heyday in the 1960s and 70s, but with its price pegged 50 times lower than today’s value, the discoveries were never commercialised.
Operational and strategic progress
The company’s operations progress is coming back to full speed after some frustrations caused by the pandemic last year. In 2019 a cluster of prospective VMS targets were identified some 50 to 200 metres below ground. Last year data evaluations indicated the presence of a VMS belt capable of producing a clean gold-rich copper concentrate, and the percussion drilling the company was able to undertake amid the pandemic restrictions found gold, zinc, copper deposits across the licence.
Together with geophysics surveys, the company has accumulated sufficient data to design a drilling programme scheduled for the spring. In November preliminary results from the surveys confirmed the presence of sulphide mineralisation that earlier exploration had located, and identified several new areas. And earlier this month the company started to receive assay results from last year’s diamond drilling programme whose receipt had been delayed due to bottlenecks at testing laboratories caused by the pandemic. Chesterfield is currently assimilating the data in preparation for percussion drilling and geophysics work over the next few weeks, and diamond drilling in May.
In the past few months the company has secured significant financial and strategic backing for its operations programme. In November Polymetal International Plc (LON:POLY), the FTSE 100 precious metals mining group, invested £2.1m to take a 22.5pc strategic stake in the company, selecting Chesterfield as a primary strategic partner for its ambitions to increase its exposure to copper. And in December £2.5m was raised through a placing to support the company’s 2021 campaign. The company’s most recent interim results, published prior to the fundraise, reported a pre-tax loss of £257,465 for the six months to 30 June (2019: £303,704) and a net cash balance of £316,478 (2019: £1,282,523).
A copper bull run
Chesterfield’s operational and strategic progress comes as many analysts are forecasting a long market run for copper. The metal’s price has risen by more than 70pc over the past year, touching a seven year high of $8,000, a leap propelled not only by the upswing in the global economy following the easing of pandemic restrictions in Asia and parts of the Western world, but also demand for renewable infrastructure projects and electric vehicles. The emerging green economy will be wired by copper: electric vehicles need four times more wiring than those with combustion engines, and solar panels and wind farms need five times that needed for fossil fuel power generation.
Commodities trading house Trafigura predicts surging demand will help drive up global consumption of refined copper from 23.4m tonnes in 2020 to 33.3m tonnes in 2030, much of it driven by the continued compounding growth of the Chinese economy: Chinese demand for copper is forecast to increase by some 800,000 tonnes this year alone as Beijing invests heavily in renewable power. Trafigura estimates a supply gap of some five millions tonnes opening this decade as the mining industry struggles to meet demand, with quality projects in mining friendly jurisdictions are becoming harder to find. Discoveries are often made in locations poorly served by infrastructure, and tougher social and environmental regulations means it takes longer to develop new mines. Even established mining companies are holding back on investment in new projects as they seek to balance their books after the decade-long commodities boom that ended in 2014.
All of which could push prices beyond the record highs of $10,000 reached in 2011. Analysis by energy consultancy Wood Mackenzie, suggests the possibility of a new commodities super-cycle as the energy transition generates infrastructure investment of more than $40 trillion over the next 20 years.
The year ahead
With a fully-funded exploration programme ahead and good long term prospects for its core market, the winds seem set fair for Chesterfield in 2021. One of the strongest LSE mining performers through 2020, the company’s share price rose from 3p at the start of the year to touch 17p in December, before falling back to 12p. We repeat our suggestion in our Christmas mining stocks roundup that Chesterfield is definitely one to watch this year.