Barry FitzGerald, a columnist with 35 years of experience covering the resources industry, notes that the copper price surge has prompted a wave of merger and acquisition activity. The recent takeovers of junior copper stocks, such as Evolution’s $213m acquisition of Carnaby and Aeris’ $214m acquisition of Peel, have been made at significant premiums, indicating that the market has undervalued these stocks.
According to FitzGerald, the big premiums being paid for junior copper stocks are based on the premise that the world will be running short of copper in coming years, meaning copper prices will remain high to prompt the development of new supply sources.
Copper Supply Crunch
The copper supply crunch is expected to drive up demand for junior copper stocks, making them attractive targets for takeover bids. FitzGerald believes that QMines, a central Queensland copper-gold developer, is one such undervalued stock. Trading at 6.7c a share, QMines has a market cap of $52m, or $37.6m after deducting its cash of $14.4m.
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QMines was brought to the market by its chairman and managing director Andrew Sparke in May 2021. Sparke is focused on building the company, rather than seeking a takeover bid. However, FitzGerald reckons that a re-rate of the stock is on the way, driven by the release of a definitive feasibility study into the development of its Mt Chalmers project.
Definitive Feasibility Study
The definitive feasibility study, expected to be released at the end of the first quarter next year, will provide a detailed plan for the development of the Mt Chalmers project. The project is shaping up as a capital-light operation, producing between 10,000 and 15,000t of copper equivalent annually, with construction likely to start towards the back end of next year.
QMines has assembled a portfolio of 10 deposits in central Queensland, with an initial 1Mtpa processing rate at Mt Chalmers to be stepped up over time as the satellite deposits are developed. The company’s resource base is expected to continue to grow ahead of the move to production, and after first production is achieved.
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Financing and Government Support
QMines has engaged the finance advisory group BurnVoir Corporate to work on financing the first stage development of the Mt Chalmers project. Subsequent expansions will be funded from the project’s cash flows, front-ended due to higher grades in the first few years. The Queensland government has also invested $15m in QMines through the QIC managed Critical Minerals and Battery Technology Fund, making it the company’s largest shareholder with a 12.3% stake.
This investment provides a point of difference for QMines, given the challenges of securing permitting and approvals for development projects. With its strong exposure to the copper thematic, QMines makes a strong upside case, with or without a takeover bid on the horizon.
