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By Team Ace Investors
Company Overview
Develop Global Limited (“DVP” or the “Company”) is an exploration and development company with demonstrated capability in underground mining. Develop is focused on producing clean metals to be used in sustainable energy generation and storage.
- Develop owns and operates flagship copper and zinc producing project, the Sulphur Springs Project in Western Australia. The Sulphur Springs project is located 144 km to the southeast of Port Hedland. Sulphur Springs is a cornerstone asset with near-term development opportunities and multiple drill targets open in all sides. Sulphur Springs holds mineral resources of 24.4 Mt at 1.2% Cu, 3.5% Zn and 18.7g/t Ag within its Pilbara projects. The company has identified three VMS mineral fields, hosting six known deposits. On 30 June 2023, the company announced an updated Definitive Feasibility Study (DFS) on the Sulphur Springs project, located in the world-class Pilbara district in WA. The study confirmed the Sulphur Springs as a technically and economically robust project with a Pre-Tax NPV of A$523 million and capable of generating strong financial returns. The updated DFS significantly de-risked the Sulphur Springs, with a reduction in the upfront mining capital required, and ~91% of the mineral inventory now is sourced from Reserves compared with ~67% in the 2018 DFS.
- On 20 May’2022, Develop completed the acquisition of Woodlawn zinc-copper mine in NSW and the extensive tenement package for an upfront payment of A$30m. Woodlawn is a high-grade zinc-copper-lead-gold-silver project located in the world-class Lachlan Fold belt in NSW, 250km south-west of Sydney and 40km south of Goulburn. The acquisition has paved the way to implement its exploration strategy to convert Inferred Resources to Indicated, extend the mineralized lenses at depth, and drill-testing recently-identified EM conductors. In Aug 2022, the Company announced an updated Mineral Resource Estimate (MRE) of 7.3Mt @ 12.0% ZnEq (5.7% Zn, 1.8% Cu, 2.0% Pb, 44.9/t Ag & 0.6g/t Au) for the Woodlawn (Underground) deposit, with approximately 65% of the MRE in the Measured and Indicated category. The Company is currently focused on upgrading Inferred Resources to Indicated and extending the mineralised lenses at depth. During the Sep 23Q, the company released an exceptional updated mine Plan for Woodlawn. The study demonstrated that the Woodlawn is a technically and economically robust project, generating a pre-tax internal rate of return of 367% and a free cash flow of A$626 million. In Oct’2023, the company announced a significant 40% increase in Resources at Woodlawn to 10.3Mt at 4.8% CuEq. This increase in Resource tonnages and grades boosted contained metal for copper by 43% to 190,000t and zinc by 50% to 620,000t for a combined 445,000t CuEq.
- On 3rd July 2023, Develop announced the acquisition of Essential Metals via a scheme of arrangement and launched a capital rising of $50m. The scheme becomes effective on 26 Oct’23 following the approval of the court. Essential owns the Pioneer Dome lithium project, which is located in WA’s ‘Lithium Corridor’ 130km south of Kalgoorlie. Pioneer Dome is a hard rock lithium development asset with a Mineral Resource of 11.2 Mt at 1.2% LiO2, on which a positive Scoping Study has been completed and a Project Feasibility Study is now underway.
Investment Rationale
Launched a 5-year business plan to create value for its shareholders
Develop Global (ASX: DVP) is an emerging mine owner and mining services business with unique capabilities and skill-sets in terms of both its people and its project. During the year, the company’s key focus was on its Woodlawn Copper-Zinc mine and Sulphur Springs Zinc-Copper mine whilst reviewing the newly acquired Pioneer Dome Lithium project. The Company completed the review of its Sulphur Springs Zinc-Copper mine and determined that development will be considered once the Woodlawn mine achieved a steady state of production. The group announced new studies for both the Woodlawn and Pioneer Dome projects during the year and after completing the Woodlawn drilling program announced an updated Resource and Reserve upgrade. The second plank of its strategy centres on the provision of underground contract mining services. The 5-year strategic goal for the division was achieved with the commencement of two new agreements in FY24, with Westgold Resources (ASX: WGX) Beta Hunt mine and the Mineral Resources (ASX: MRL) Mt Marion mine. The contracts are also budgeted to progress alongside the Group’s first contract with Bellevue Gold (ASX: BGL). These two pivotal events laid the foundations for Develop to launch its five-year business plan, which outlined a clear pathway for value creation.
- Build world-class underground capability.
- Be one of the most socially responsible and ESG-friendly companies on the ASX.
- Produce some of the world’s cleanest energy transition metals.
- Aim for annual metal output in excess of 50,000 tonnes copper equivalent, 200,000 tonnes at 5.5% lithium spodumene and establish long mine lives, 7-10 years.
- Mining services capability to operate 5 to 7 projects (2-3 for third parties to generate free cash flow).
Develop poised to embark on funding and production strategy following significant Resource upgrade
On 22nd Mar 2024, Develop announced a substantial increase in Resource for its 100% owned Woodlawn project, with Resource increasing by 1Mt to 11.3Mt at 1.8% Cu, 5.8% Zn, 2.1% Pb, 46gpt Ag & 0.5gpt Au (3.8% CuEq) from 10.3Mt at 1.8% Cu, 6.1% Zn, 2.2% Pb, 47gpt Ag & 0.5gpt Au (4.0% CuEq) previously. The updated MRE increased contained metal to >190,000t copper and 650,000t zinc and Measured and Indicated Resource by 900,000t to 8.1Mt, providing a strong platform for significant Reserve growth. Under Develop’s ownership, the Woodlawn Resource has now grown by 4Mt (+55%), with an additional 60Kt (+45%) of copper metal and 235Kt (+56%) of zinc metal added to the global resource. This expanded Resource paved the way for an increase in mine life from 7 years currently to 10 years based on existing throughput capacity of 850,000tpa. The highly successful program has resulted in the addition of 4Mt of resources, including an additional 60,000t of copper and 235,000t of zinc metal. This considerable increase, led by the discovery of multiple new lenses, means Woodlawn now has substantial scale with outstanding potential for further growth.
The Production Restart Study on Woodlawn Copper-Zinc Mine delivered a 37% improvement in pre-tax NPV to A$658m
On 3rd Apr’ 2024, the company announced that it has completed the production restart study on its flagship 100%-owned Woodlawn Copper-Zinc mine (“Woodlawn” or the “Mine”) located approximately 250 km southwest of Sydney. The Study showed that Woodlawn is set to generate outstanding financial returns and create substantial value for Develop shareholders, with significant increases in the Net Present Value (NPV), Reserves, free cash flow and mine life compared with previous assessments. The mine plan indicates Woodlawn will produce an average 12,000t of copper and 36,000t of zinc metal in payable streams per annum and a Life of mine payable metal of 80,000t copper and 218,000t zinc. The mine is forecast to generate revenue of A$2.6 billion and pre-tax free cash flow of A$1 billion over an estimated 10-year life.
- The Study has delivered a 37% improvement in pre-tax NPV of $481m in Sep-23 to A$658m, reflecting substantial exploration success at the mine, which has seen the Ore Reserve increase by 80% to 6Mt at 2.8% copper-equivalent (CuEq) and Mineral Resource increase by 55% to 11.3Mt at 3.8% CuEq.
- The study delivered a 60% improvement in Pre-tax free cash flow from A$626m to A$1 billion based on a 10-year mine plan.
- The study also showed that Woodlawn is a low-risk restart, with 80% of the mine plan is underpinned by Reserves and a Restart capital cost of just A$42m.
- The company also de-risked the project with the first two years of production already fully developed and grade control drilling completed.
- In light of these exceptionally strong financial and operational metrics, Develop has decided to start exploring funding options which may result in it selling a minority interest in Woodlawn. Develop intends to implement a similar strategy at its Sulphur Springs zinc-copper mine in WA.
Develop executed funding and offtake agreements with Trafigura to bring the Woodlawn mine into production
On 2nd Aug’2024, Develop advised that its subsidiaries, Woodlawn Mine Holdings Pty Ltd and Tarago Operations Pty Ltd (together, the “Sellers”) have entered into a term sheet for a prepayment/loan facility and offtake arrangement with global commodities trader Trafigura for its Woodlawn copper-zinc mine in NSW (“Woodlawn”). Under the term sheet, Trafigura will provide US$65m (~A$100m) in a prepayment/loan facility to the Sellers to bring the Woodlawn mine into production. The terms of the facility are extremely competitive, with interest rate of SOFR 3 month plus 2.0%(if drawn in US$) or BBSY 3 month plus 2.0% (if drawn in A$). This reflects the ~A$400m of equity capital that has already been invested into the mine by Develop and the prior owner. In connection with the prepayment/loan facility, Trafigura will buy all of Woodlawn’s production under a ~5-year term offtake arrangement. With this facility, existing cash reserves of A$41m as of 30 June 2024 and a profitable mining services division, which is expected to grow cash reserves in FY25, Develop’s Woodlawn mine is now fully-funded through to production. The prepayment/loan facility and offtake arrangement will pave the way for Develop to progress towards making a FID during the Sep24Q and would put Woodlawn on track for first production and cash flow in mid CY2025. During Sep24Q, the company awarded A$25.7m contract to processing specialists GR Engineering Services (GRES) to upgrade and recommission the Woodlawn processing plant, which triggered a A$20m FID milestone payment.
ACE’s Recommendation
Develop Global Limited (ASX: DVP) is an exploration and development company with demonstrated capability in underground mining. Develop is focused on producing clean metals to be used in sustainable energy generation and storage. The company implemented its two-pronged strategy to supply energy transition metals and underground mining services. During the Sep 23Q, the company released an exceptional updated mine Plan for Woodlawn. The study demonstrated that the Woodlawn is a technically and economically robust project, generating a pre-tax internal rate of return of 367% and a free cash flow of A$626 million. After the quarter, the company announced a significant 40% increase in Resources at Woodlawn to 10.3Mt at 4.8% CuEq. This increase in Resource tonnages and grades boosted contained metal for copper by 43% to 190,000t and zinc by 50% to 620,000t for a combined 445,000t CuEq. On 3rd Apr’ 2024, the company released a production restart study on its flagship 100%-owned Woodlawn Copper-Zinc mine. The Study has delivered a 37% improvement in pre-tax NPV of $481m in Sep-23 to A$658m and a 60% improvement in Pre-tax free cash flow from A$626m to A$1 billion based on a 10-year mine plan. The study also showed that Woodlawn is a low-risk restart, with 80% of the mine plan is underpinned by Reserves and a Restart capital cost of just A$42m. On 2nd Aug’2024, the company executed a term sheet for a prepayment/loan facility and offtake arrangement with global commodities trader Trafigura for its Woodlawn copper-zinc mine in NSW (“Woodlawn”). Under the term sheet, Trafigura will provide US$65m (~A$100m) in a prepayment/loan facility to the Sellers to bring the Woodlawn mine into production. The prepayment/loan facility and offtake arrangement will pave the way for first production and cash flow at Woodlawn in mid CY25. We believe that first production and cash flow at Woodlawn in mid CY25 is a key near-term catalyst for growth. The stock closed the day at A$ 1.975/share and presents investment case in our view. So, we would like to recommend a BUY rating on the stock.
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