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Cassini Resources Ltd: THE INVESTMENT CASE

Cassini Resources works towards PFS with OZ Minerals as its joint venture partner

Shareholders could see value emerge from near-term exploration at the Succoth project.
Picture of drill rig on site at West Musgrave
INVESTMENT OVERVIEW: CZI The Big Picture
OZ Minerals' investment is a show of confidence in establishing a long-life project at West Musgrave

Cassini Resources Ltd (ASX:CZI) has transformed over the years from a single asset group to a company with a broad range of projects and importantly exposure to precious and base metals.

However, its flagship West Musgrave Nickel-Copper Project in Western Australia, one of Australia’s largest undeveloped nickel-copper deposits, is still the main focus.

Due to its sheer size it will take time and substantial capital to bring the project into production.

Consequently, the addition of projects such as Mt Squires (gold) and Succoth, which has an inferred resource of 156 million tonnes at 0.6% copper, provides near-term catalysts.

There have been significant developments in 2017/2018 in terms of Cassini positioning itself to develop a mammoth project such as West Musgrave as a relatively small company.

Consequently, it is important to understand where the company is at on this front.

OZ Minerals provides cash and experience

Cassini has progressed its $36 million earn-in/joint-venture agreement with OZ Minerals Limited (ASX:OZL) whereby it is free-carried until a decision to mine.

OZ Minerals can earn up to 70% in the West Musgrave project under this agreement.

The joint venture agreement contemplates $28 million of expenditure on development of West Musgrave and further regional exploration investment of up to $8 million.

Succoth the sleeping giant

Shareholders could see value emerge from near-term exploration at Succoth.

In fact, management refers to Succoth as a “sleeping giant”, highlighting high-grade zones of mineralisation close to surface.

What would be the game changer is the identification of nickel mineralisation that could potentially add to West Musgrave's economic viability.

Early stage drilling reveals nickel mineralisation

Management’s confidence regarding the likelihood of this materialising has been buoyed by limited, but revealing, drilling to date.

An upcoming exploration program will expand management’s understanding of the mineralisation at One Tree Hill and the Succoth copper deposit, as it pushes ahead at West Musgrave with the intention of establishing a multi-decade operation.

Exploration success at Succoth may be a substantial share price catalyst, as it could provide feedstock for the West Musgrave project.

Support from $2.7 billion OZ Minerals

OZ Minerals is an obvious believer in the prospect of establishing a long-life project at West Musgrave.

As a $2.7 billion mining group, it would not be in the best interests of the company to be pursuing small short-term projects.

OZ Minerals has invested heavily in the project to date as a joint venture partner.

In November 2017, OZ and Cassini jointly announced the successful completion of the West Musgrave further scoping study (FSS).

Outcome of FSS

The FSS evaluated several development scenarios ranging from 6 to 12 million tonnes per annum throughput.

The study demonstrated the economic viability of the project at all the throughput scenarios with strong annual nickel and copper production and low operating costs.

It was determined that the 10 million tonnes per annum scenario presented the most financial potential.

Low-cost production provides competitive advantages

Average annual production is estimated to be between 20,000 tonnes and 25,000 tonnes of nickel in concentrate and between 25,000 tonnes and 30,000 tonnes of copper in concentrate during the first eight years.

In the first three years, the average annual production is estimated to be at the upper end of these ranges and quite likely higher.

This supports an estimated payback of the capital expenditure on the project in less than four years.

Cash costs are forecast to be at the lowest end of the range of Australian nickel and copper producers, representing strategic advantages, particularly in negotiating offtake agreements.

OZ Minerals to manage PFS

Cassini also flagged the commencement of a pre-feasibility study (PFS) into the development of the Nebo Babel deposits.

The next stage of funding requires OZ Minerals to invest $19 million in development and exploration within an 18-month period in order to earn 51% of the project.

In order to streamline this next phase, Cassini has elected for OZ Minerals to manage the PFS.

Bevan highlights potential upside from adjacent deposits

Cassini managing director Richard Bevan recently fleshed out the various options that could be on offer depending on exploration results in areas adjacent to the main deposit.

On the announcement of the FSS results, he said: “The scoping study advances the development of the Nebo-Babel deposits.

“The increased scale of the project has opened up a range of possibilities beyond what we had originally contemplated, with potential for further upside to be realised in the upcoming PFS.

“We have an initial eight years of mine life with a clear view on increasing this to beyond 15 years.

“The exploration program will expand our understanding of the mineralisation at One Tree Hill and the Succoth copper deposit, as we pursue our goal of establishing a multi-decade mining operation.”

Benefits of precious metals exposure

With regard to Mt Squires, it provides the added advantage of exposure to precious metals.

Impressive drilling results have already been recorded including 15 metres at 2.3 g/t gold and 5 metres at 4.7 g/t gold.

Consequently, if economic conditions shift and base metal prices come under downward pressure, this could be accompanied by a resurgence in the gold price.

Gold is a potential counter-cyclical play

Gold’s safe-haven status often results in its commodity price running counter-cyclical to base metals.

Notably though, such a move would be from a relatively high base with the gold price appearing to have stabilised in a range above $1,700 per ounce.

Australian producers benefit from the Australian dollar/US dollar exchange rate, and as such, the establishment of a producing mine at Mt Squires could provide healthy margins and strong cash flow.

Mt Squires benefits from proximity to the West Musgrave

Mt Squires’ close proximity to the West Musgrave project provides logistics advantages.

Management is completing work programs ahead of the receipt of heritage and environmental approvals.

As a project that could conceivably be brought on stream relatively quickly, it could provide useful cash flow to assist in financing development of the core West Musgrave project.

On this note, OZ Minerals has substantial experience in running dual production mines that involve the processing of base and precious metals.

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