Will a bidding war follow for Chesterfields high grade Copper project in Canada?
“…Chesterfield found a buyer relatively quickly after announcing the licence was for sale, indicating that suggestions of multiple suitors, then and now, are credible. If they can secure a buyer for Adeline in the next few weeks or months, and the signs seem promising, the company’s value may recover somewhat in the near term, opening the way for further gains as it presses ahead with its plans for Cyprus…”
There was disappointment last week for Chesterfield Resources (AIM:CHF), pursuing copper and gold projects in Canada and Cyprus, when a seemingly ideal arrangement for the development of its Adeline project, located in one of North America’s most prolific mining districts, suddenly fell through. But with high hopes of securing a new buyer, thereby opening the opportunity for the company to move forward with its Cyprian assets, could CHF bounce back in the next few weeks?
Located within the western half of the 260 km long Central Mineral Belt in Labrador, eastern Canada, Adeline comprises five contiguous mineral licenses covering 297.3 km2 that span the full extent of the Seal Lake basin, a geological structure hosting some 250 copper prospects. Historic trenching and channel sampling has established the presence of copper grades ranging from 10pc to 30pc. Drill testing has so far been limited due to a lack of road access but the data accumulated to date indicates ‘distinct similarities to many of the world’s great sediment-hosted copper deposits … with belts including very rich copper ore mineralogy, efficient metal traps needed to form economic copper-silver deposits, and km-scale strike extents of prospective geology with hundreds of copper showings that allow for multiple camp-scale discoveries.’ Historic trenching results suggest the continuity of resource-quality thicknesses and grades of rich copper sulphide mineralisation (with potential for silver) along exposed strike lengths.
Chip and rock samples undertaken by CHF itself across multiple targets returned ‘locally high-grade copper and silver assay results’, identifying the dominant copper minerals as chalcocite and bornite, which demonstrate a particularly ‘high tenor’ of copper mineralisation. A desktop review researching results over the past 70 years – encompassing geophysics, rock and trench sampling, and various drilling programmes – found ‘highly encouraging historical drill intersections’ including one one of 1.76pc copper and 56.2 g/t silver over 7.9 metres within the prospect’s Ellis target.CHF has published a technical report which summarises the accumulated information gained from the field programme and desktop study, detailing the styles of copper mineralisation so far discovered and picking out primary targets for exploration.
Adeline finds a buyer, briefly
Last summer CHF began the process of finding a buyer for Adeline, concluding that ‘a project of Adeline’s scale, size and potential value’ would ‘be able to progress much more quickly and effectively than would have been the case had Chesterfield pursued the funding and carried out the work on its own.’ The project was reviewed by a number of groups before an agreement was reached last October with Pacton Gold, a TSX-V listed Canadian exploration company, according to which Pacton would acquire Adeline in return for granting CHF a 19.99pc stake and continued influence over the project’s development, including a seat on the board.
Welcoming the agreement, Pacton said: ‘Proven high-grade showings and drill ready targets make Adeline an ideal property for rapid exploration … With the early-stage exploration already complete, Pacton will be looking to commence drilling this remarkable property at the earliest opportunity.’ But last week the Canadian company withdrew, concluding that ‘the immense scale of the project exceeds Pacton’s capacity to take the project to the development level.’ In its own statement CHF remained hopeful, pledging to ‘continue the process started last year to solicit interest in Adeline’, and noting that ‘investor interest in the Adeline project, as solicited by Pacton, has been robust.’ The Canadian company’s bid ‘was accepted following a thorough process which drew interest and indicative offers from a variety of operators who met our criteria, including the ability to efficiently fund and execute a thorough exploration’. CHF expected that new bidders would be encouraged by ‘the results of the extensive technical work undertaken by Pacton on the property and improved commodity and precious metal prices since October 2022.’
Pacton’s assessment of Adeline has remained positive, remarking that ‘five months of detailed analysis of excellent prior geological work’ continued to indicate that the ‘Adeline Copper Belt is one of the world’s most prospective copper exploration projects, in terms of its large area and extraordinary number of surface copper showings.’ In an earlier update Pacton said that ‘Adeline checks all the exploration and investment boxes in both the industrial and strategic metals markets: enthusiastic mining jurisdiction … hundreds of significant copper targets over a sedimentary belt measuring 40 km by 15 km, demonstrated ore grades and thicknesses at several prospects encountered by reconnaissance drilling, and … accessible for exploration and development.’ The project shared key characteristics with several giant sediment-hosted copper mineral systems that contain significant copper deposits, including the Keweenawan Copperbelt, Michigan (White Pine: 230MT at 1pc Cu, 12 g/t Ag; Copperwood: 100MT at 1.4pc Cu, 4 g/t Ag) and the Udokan Mine, Russia (Mineral Resources: 2.75BT at 0.97pc Cu, 11.9 g/t Ag; Mine Reserves: 1.2BT at 2.0pc Cu).
Continued work in Cyprus
Adeline has been under the spotlight over the past few months, but CHF continues to define the potential of its portfolio of fully owned licences running across Cyprus’s Troodos Mountain range. The company is seeking to bring modern technology to historic mines first entered by the ancient Greeks and Romans, and thereby help reignite a Cyprian mining industry stalled for half a century since the 1974 conflict with Turkey. CHF 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 never passed the threshold of commercialisation.
CHF has undertaken remote sensing, mapping, archive, geochemical and geophysics programmes to uncover Volcanognic Massive Sulphide (VMS) deposits pre-modern exploration techniques had not been able to access. In 2019 a cluster of prospective VMS targets were identified some 50 to 200 metres below ground, indicating the presence of a VMS belt capable of producing a clean gold-rich copper concentrate. Diamond drilling indicated an extensive gold/silver system, significantly enhancing ‘prospectivity at three target areas, Orchard, Evlim and Evlim South’ and establishing ‘a 12 km geological trend … now considered key to controlling several mineralised systems, with the potential for further discoveries along the structure’. This ‘Westline Trend’ has yielded gold equivalent grades ranging from 1.63 g/t to 8.04 g/t, and copper equivalent grades from 1.00pc to 4.94pc. CHF believes that the gold zones so far encountered indicate the presence of copper rich deposits nearby, noting that the two other main explorers on the island, Caerus Resources and Venus Minerals, have both reported gold-rich encounters.
CHF’s Cyprian strategy for 2023 promises ‘more drilling to continue to test the mineralised system for massive sulphide with potential in all directions’ subject to ‘factors that will include the sale of the Adeline interests and prevailing market conditions.’ The company is rationalising its licence portfolio to focus on the Westline and Orchard assets, mitigating the costs that would otherwise be payable for the renewal of assets likely to be of lesser interest. As the affected licences expire in the coming months, CHF’s portfolio will be reduced from a total of 26 licences covering 110.42 km2 to three licences covering 13.39 km2. The company is entertaining proposals for joint venture or direct investment in the Cyprus licences ‘though no such discussions are currently advanced.’
The copper megatrend
CHF is working to position itself to take advantage of one of the world’s economic megatrends, the long term demand for copper driven by the global shift to a greener economy. The price of copper, a fundamental metal for transition technologies like wind turbines and electric vehicles, stuttered through 2022 as fears of recession grew, but the long term signals seem irresistible. Demand for this absolutely critical transition metal is forecast to double, or even triple, in the next few years, and could soon outstrip demand by nine million tonnes a year. Erratic prices notwithstanding, visible copper stocks are running at record lows. The IEA estimates that soaring EV battery demand will require 50 new lithium projects, 60 nickel mines and 17 cobalt developments by 2030. But current investment is running at nowhere near the scale required. Since 2015 EBITDA enjoyed by the mining majors has more than doubled but expansionary capital has been depressed.
Outlook
Though the breakdown of the Adeline deal was a blow, the case for CHF still seems robust. The issues for the collapse of the agreement seem to be specific to Pacton. CHF found a buyer relatively quickly after announcing the licence was for sale, indicating that suggestions of multiple suitors, then and now, are credible. The company faces the classic small cap natural resource challenge of securing sufficient funding to realise the value of it interests. CHF currently has cash, having undertaken a fundraise of £700,000 last year. Its most recent interim figures reported a cash balance as at 30 June 2022 of £663,226 (30 June 2021: £1,504,973), and a pre-tax loss for H1 2022 of £491,607 (H1 2021: loss of £433,538). Given its small market cap of less than £2m the company would require a relatively modest raise to stay afloat should it need to return to the market soon. CHF’s most recent statement on the matter said the ‘Board does not expect to undertake any dilutive equity offerings for the remainder of 2022, and the ambition is for that to extend well into 2023.’ The company has been pursuing an efficiency programme to reduce cash outgoings by 50pc.
CHF’s share price – 1.5p at the time of writing – reflects the period of uncertainty through which the company is moving. It was 7p as recently as a year ago, and more than 17p the year before that. It remains to be seen whether CHF can ever rescale those heights. But if it can secure a buyer for Adeline in the next few weeks or months, and the signs seem promising, the company’s value may recover somewhat in the near term, opening the way for further gains as it presses ahead with its plans for Cyprus.
