November 23, 2020 - 12:28pm EST by
2020 2021
Price: 3.64 EPS 0 0
Shares Out. (in M): 309 P/E 0 0
Market Cap (in $M): 700 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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Upfront caveat: this is an exploration idea and a lot of the conviction here comes from calls/conversations with geologists and early investors involved. Sometimes with situations like these, simply focusing attention on something that has not been uncovered by the market (no sell side coverage and fairly new discovery) is value added. We think the bear case here is a takeout at +100% in next six months, with potential upside in the 5x to 10x range over next 18 months.   


Executive Summary:


Our investment in Chalice is predicated on the significance of their recent find… Julimar.  As we detail below, we think the current finding is currently worth 300% of the market cap with the potential to be worth 10x plus in the next two years. Simply put – we think it is one of the most significant findings in decades. The initial find and subsequent array studies show a significant Palladium / Platinum/ Nickel / Copper / Cobalt deposit – with a very large catchment area. Prior to announcing the study, Chalice bought up the rights to pretty much every piece of land in and around the area (chart below), and has even negotiated JV’s with one partner who already had the rights.


Chalice Gold Mines (“CHN AU”), is an Australian based exploration and production company, operating throughout Australia exploring for precious metal deposits. Having IPO’d in 2006, it has operated for 14 years as a vehicle spec’ing and selling assets and returning a healthy amount of capital to shareholders along the way. The founder – Chairman Timothy Goyder – owns 12% and has always taken a conservative financial approach (Company currently has 50mn AUD net cash – no liquidity needed anytime soon). The Chairman was able to convince the head Geologist – Dr. Kevin Frost – to join the company and along with MD Mr. Alex Dorsch who was appointed in November 2018, the three of them represent the management team driving what we think is one of the most exciting mining discoveries.


As we detail below, a finding of this magnitude in Paladium / Cobalt would be pretty much the only developed world findings of such metals. The security of supply / ESG implications for those metals / and ease of extraction (remarkably the site is located one hour from Perth) present a unique opportunity for a scaled mining major to help shift their portfolio away from coal / iron ore and base metals, to the more ESG geared metals which this deposit has – namely – nickel / copper / palladium / platinum / cobalt. All five are crucial in the drive for electrification and decarbonisation.


With the initial drill hole studies and  electromagnetic readings– we see the potential for the finding to be orders of magnitude larger than what has been mapped – potentially one of the bigger deposits in the world -- with a high likelihood of Gold and other precious metals along the Yilgan craton—the geological area that brought them initially to the area for their exploration efforts.



Team assembled and shareholders involved:


The GM for exploration Dr. Kevin Frost – has over 25 years experience in a variety of senior exploration roles with a range of mining companies and also through working with mining companies as a consultant. In 2009 he was the joint recipient of the AMEC prospectors award for the discovery of the Spotted Quoll nickel sulphide deposit in Western Australia. He was also responsible for Western Area Limited’s first significant nickel sulphide discovery – Flying Fox in 2003. He is a member of the Australian Institute of Geologists and our channel checks across the industry from investors, sell side and various company IR’s point to him as being highly respected and one of the best geologists on the planet. He was lured out of his previous Job (consultancy) to take charge of Chalice exploration drive and spearheaded the discovery of Julimar (more below).


Chairman Tim Goyder, got his start drilling in the Kugali region in central Australia. He is from a mining / oil and gas family. His brother—Richard Goyder – was on the board of BHP and is currently the chairman of Qantas Airlines.


Robert Friedland, CEO of Ivanhoe Mines and perhaps most famous for discovering two of the most famous mines in the world (the Oyu Tolgoi copper-gold deposit in Mongolia and Voisey’s Bay nickel deposit in Canada), bought in at the oversubscribed May equity raise. Friedman has amassed a personal fortune of more than $1.1bn according to Forbes, predominantly from his successes in the resources space. Mr Friedland’s current business, Ivanhoe Mines, is focused on developing copper and zinc mines in the DRC and a palladium-platinum-nickel-copper-rhodium-gold mine in South Africa. In short, his more than 10m shares investment in Chalice is a ringing endorsement of its potential given his track record in asset discovery.



Julimar Discovery:


Julimar is a Nickel-Copper-PGE Project in Western Australia, 70km north-east of Perth

  • Australia’s first major palladium discovery, with potentially commercially significant nickel, copper, cobalt and other PGM content.

  • 100% owned, 26km long intrusive complex

  • Discovery with first drill hole in March 2020 à new West Yilgarn Ni-Cu-PGE Province

  • Prior to Chalice, the area had never been explored for these metals, and geological mapping of the area was limited due to extensive transported cover.

  • Drilling so far has been confided to private farmland (Gonneville Intrusion), with approval to gain access to the Julimar State Forest for low impact, non-ground disturbing exploration activities ongoing. When such approval is granted, given existing electromagnetic work, the discovery is expected to be significantly enlarged.

  • Early stage metallurgical test-work has returned promising flotation results, giving initial encouragement that the sulphide-hosted mineralization at Gonneville will be amenable to conventional flotation and therefore an asset that will exist in the bottom quartile of the cost curve given expectations that the mine will be an open-pit construction.

  • An airborne electromagnetic survey was recently completed over the entire Julimar Complex, with three new electromagnetic anomalies identified – Hartog, Baudin, and Jansz. Meanwhile further drilling and assaying is being conducted to further determine the scale of the discovery.

  • Middle of 2021 expect to release first dual compliant resource – an indication of their confidence is that they could release an inferred number today, but are choosing to go straight to measured and indicated. They then expect scoping studies to be completed and released in 4Q21


Why the Julimar complex is a near perfect ESG story:


Julimar has a unique mineral mix, almost uniquely geared into the thematic trends of electrification and decarbonization.


  • Palladium: The Palladium market is in a fundamental deficit driven by demand growth (6% p.a. in 2019) linked to increasingly stringent environmental emissions standards on automotive transport and exacerbated by recent production issues in South Africa. Palladium is used in gasoline catalytic converters, alongside Rhodium, to remove NOx and particulates from engine exhausts. Increasingly stringent global emissions standards, with the biggest delta being emerging markets, and the transition to testing under real world driving conditions, as well as the decline of diesel as a percentage of the global light duty vehicle mix as a result of Diesel Gate has driven, and will continue to drive, demand growth in Palladium. As emissions standards increase, the Palladium loading in an autocatalysts must also increase. 75% of global palladium demand is driven by autocatalyst demand.

    • More than 75% of global palladium supply comes from Russia and South Africa and the developed world is currently largely reliant upon these two sources

    • Palladium is normally a by-product of platinum production, so the discovery of a palladium rich PGM complex makes the asset an attractive strategic asset

  • Nickel: The amount of nickel in a cathode determines the energy density of a lithium ion battery and is key to the ongoing aim of improving electric vehicle range and driving down costs. Tesla at its most recent battery day has said that intends to continue increasing the amount of Nickel it uses in its batteries as it targets production of 3,000GWh in 2030. Wood Mackenzie has estimated that by that time, Tesla alone could need up to 1.15mT of Nickel a year, almost 50% of current global supply. On the earnings call, Elon Musk said: “I’d like to re-emphasise, any mining companies out there, please mine more nickel. Tesla will give you a giant contract for a long period of time, if you mine nickel efficiently and in an environmentally sensitive way”. Furthermore “Class 1” Nickel, in other words Nickel with a purity of more than 99.8%, is critical for use in cathode materials and is generally derived from sulphide deposits which McKinsey estimates to make up only 46% of current nickel production

    • Julimar is a nickel sulphide resource base

  • Cobalt: Cobalt is a key element in determining the electro-chemical stability of cathode materials in lithium ion batteries. 60-70% of global production however comes from the Democratic Republic of Congo and there are significant concerns around both security of supply and the use of child labour in artisanal mining. There is significant focus on thrifting cobalt out of lithium ion batteries given its cost and concerns over supply, however both dominant high energy density technologies today (NMC and NCA) contain the metal.

  • Platinum: the recent focus on the potential for hydrogen is slowly bringing attention back to Platinum. Platinum was the PGM that lost out due to the shift away from diesel, as demand plummeted and the relative price spread to Palladium has crept up to record levels. However, Platinum is the key catalyst in fuel cells and one of the two key PGMs in electrolysis cells. On our numbers, fuel cell EVs, trucks and Electrolysers alone could equal 35% of global platinum supply as soon as 2030, more than replacing the demand from autocatalysts.

  • Iridium: we have identified Iridium as perhaps the key bottleneck to the idea of Green Hydrogen. In 2030, demand for Iridium from PEM Electrolysers could equal 125% of current global supply. Iridium is produced as a by-product of platinum and palladium production, but prices look set to increase substantially going forwards potentially making Iridium specific production more attractive.

    • We are still awaiting the final assay results for the lesser known PGMs, but initial results have suggested there is an Iridium presence in the complex

  • Copper: global electrification as a means to decarbonise is a well-known theme, as is the resultant increase in global copper demand through grid reinforcements and higher copper content per vehicle. Fitch expects the global copper market to enter an increasing deficit from 2022, reaching more than 500kt by 2027. BHP has said it expects a dearth of high-quality development projects to support copper prices in coming years, as declining grades, exhausted resources and rising input costs contribute to the deficit from the supply side.



Why is the Julimar find so exciting?

Simply put, the discovery of a new mining province in Australia doesn’t happen very often, let alone one just outside of Perth. The closest known equivalent geological formation is Norilsk, the largest known nickel-copper-PGM deposit in the world with an estimated current resource in excess of 1.7bn tons. Like Norilsk, Julimar has been found on/near a Craton margin, and like Norilsk, Julimar is a nickel-copper-PGM sulphide ore body. What gives us confidence in the potential scale of the recovery is two-fold:

Drilling results at Gonneville point to much larger G4 area and an already commercially viable resource

The shaded areas represent the areas currently classified by the company, but drilling results essentially indicate that the G4 region extends, in principal, through the area as outlined by the red circle. The deep holes, a long way to the north and west released with the most recent drilling results, have shown there is a significant amount of growth still to come from G4. The hole which encountered 3m of 1.9g/t Pd, 0.5g/t Pt, 0.5g/t Au, 0.2% Ni, 0.5% Cu and 0.02% Co (circled in green) is misleading because the intercept was actually truncated by a dolerite before hitting mineralisation, and the company estimates therefore the mineralisation could in fact have been up to 23m. The company is awaiting assay results for a further 45 completed drill holes.

Finally, we have so far focussed only on the high-grade sulphide disseminations, but the company’s most recent drilling results point to the potential for a further PGM rich oxide layer. They have been routinely discovering 1.5-2g/t of PGMs – which is not low-grade material. This is the only known PGM-rich oxide discovery in Australia, and something not seen anywhere else in the world. Management believe there could be close to 10mT of ore here, a volume of material that would arguably merit mining without the sulphide discovery. This is very early stage and further test-work is required to determine its significance and commercial extraction potential, but just further highlights the prevalence of PGMs in this complex.


Value – Discovered and potential:

The existing discovery equates to just over 35mt of ore but given the electromagnetic results and range of CHN’s tenements, we think this could be a major global discovery, potentially as big as Norilsk. If one assumes that the discovery is a quarter the size of a Norilsk, on current reserves to be conservative, that equates to 425mt of ore. Making assumptions about the homogeneity of the resource, development costs, production costs and decommissioning costs, we calculate the NPV of the existing discovery and potential discovery at both LT and spot prices.


NAV Estimate


Found it hard to paste the pictures here so attaching a link to the most recent presentation that includes the graphs (referenced above) that shows the boundaries of the current resource and potential catchment area.





I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


State Forest access 

Additional drilling results

Acquisition by a major

Strategic partnership with industry player

This write-up is intended for informational purposes only and you should not make any financial, investment, or trading decisions based upon the author's commentary. Although the information set forth above has been obtained or derived from sources believed to be reliable, the author does not make any representation or warranty, express or implied, as to the information's accuracy or completeness, nor does the author recommend that the above information serve as the basis of any investment decision. At any time, the author of this report may trade in or out of any securities that are mentioned in the write-up without disclosing this information. This is not an offer to sell or a solicitation of an offer to buy any security.



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