Looking for a stock to double in price in the short to medium term is a very dangerous thing to do on the share market. If you give stocks years – even decades – many of them, if they survive in business, will at least double, and some will go on to generate many more times that return. However, in trying to compress the timeframes, you increase the risk. But all that considered, here are two miners that look like they can you give a reasonable chance of doubling your investment – with the caveat that buying either of them must be considered a speculative play.
- Develop Global (DVP, $1.965)
Market capitalisation: $533 million
12-month total return: –34.3%
Three-year total return: –12.1% a year
Analysts’ consensus target price: $4.10 (Stock Doctor/Refinitiv, two analysts)
When former Northern Star Resources boss Bill Beament decamped and set up Develop Global, in 2021, plenty of investors took notice – after all, Beament oversaw a 1,600-times rise in the market capitalisation of Northern Star.
What was intriguing, though, was that Beament also exited gold, saying it was “not green.” Instead, he targeted his new miner at copper and lithium, and to a lesser extent, zinc, saying he wanted to be in “clean transition metals.”
There was another twist to the tale, too. Develop Global would also house an in-house underground mining contracting business, which would also work for third parties – in a similar fashion to how Mineral Resources operates a big mining services business (it is the world’s largest crushing contractor) as well as being an iron ore and lithium producer in its own right.
Three years on, and Develop Global owns the Woodlawn copper, zinc and silver mine in New South Wales; the Pioneer Dome spodumene (hard-rock lithium ore) prospect in Western Australia; and the Sulphur Springs zinc and copper project in Western Australia. As well, the mining services division has a $400 million underground mining contract with Bellevue Gold at the high-grade Bellevue Gold Project; and capital development contracts with Mineral Resources at the Mt Marion lithium mine and with Westgold Resources at the Beta Hunt gold mine.
In FY24 the mining services division generated $130 million in revenue and Develop Global has guided for $200 million in the current financial year. The division is profitable – which helps to bankroll the development of the projects.
Woodlawn was mined from 1978 to 1998 and was Australia’s second highest-grade zinc equivalent mine at the time. Historically, Woodlawn produced 13.8 million tonnes at a grade of 15.9% zinc-equivalent – although these days, the resource is considered a copper resource.
The current underground resource is 7.3 million tonnes at 5.7% zinc, 1.8% copper, 2.0% lead, 44.9 grams per tonne (g/t) silver and 0.6 g/t gold.
The mine plan estimates that Woodlawn will produce an average 12,000 tonnes a year of copper and 36,000 tonnes a year of zinc metal over an estimated ten-year mine life, with life-of-mine payable metal of 80,000 tonnes copper and 218 000 tonnes of zinc. The production restart study, released in April, had a pre-tax net present value (NPV) for Woodlawn of $658 million, and free cashflow of $1 billion.
In August, Develop announced a $100-million prepayment/loan facility and offtake agreement with global commodities trader Trafigura for Woodlawn, under which Trafigura will buy all of Woodlawn’s production under a five-year-term offtake arrangement.
The agreement paves the way for a final investment decision and puts the mine on track for production and cashflow by the middle of 2025: with the Trafigura facility, existing cash reserves of $41m as at 30 June 2024 and a profitable mining services division, which is expected to grow cash reserves in FY25, Develop says Woodlawn is now fully-funded through to production and cashflow, commencing mid-2025, subject to final investment decision. After the Trafigura deal, pre-tax NPV for Woodlawn was lifted to $728 million, and the free cashflow figure to $1.1 billion.
At recent spot prices of copper and zinc, the first three years of production are expected to yield $375m of free cashflow, providing substantial cash generation while repaying the $100 million loan facility.
At Pioneer Dome, Develop says it will mainly work underground, with the company saying the project is poised to generate “outstanding cashflow and financial returns.” Capital spending will start at the site in July 2025, with Sulphur Springs following six months later.
Develop Global Develop is on the cusp of becoming a substantial Australian copper and zinc producer with strong cashflow underpinned by sales of its own metal and its mining services business. Analysts expect the company to be profitable at the net profit level in FY26, and on that basis, the company trades at a cheap prospective price/earnings (P/E) ratio of 7.2 times FY26 earnings.
- Metro Mining (MMI, 6.3 cents)
Market capitalisation: $375 million
12-month total return: 231.6%
Three-year total return: 51.8% a year
Analysts’ consensus target price: 14 cents (Stock Doctor/Refinitiv, one analyst)
When everyone talks of critical minerals, aluminium doesn’t often make it into the conversation, but the metal is not only essential to daily life – in our buildings, cars, trains, planes, phones, food containers, cooking utensils, electricity infrastructure, televisions and household appliances – it is also crucial for the energy transition and decarbonisation. Aluminium underpins renewable energy generation in solar panels, wind turbines and transmission wires and also in the bodies and batteries of electric vehicles.
Metro Mining is the only ‘pure play’ producer of bauxite (aluminium ore) on the ASX, from its Bauxite Hills mine, located north of Weipa on the western shore of the Cape York Peninsula in Queensland. Mining operations began at the site in April 2018, and by 2019, the mine was producing 3.5 million wet metric tonnes (WMT) of bauxite. In May 2023, Metro Mining pushed the green light on expanding the mine’s expansion output to 7 million tonnes per annum (mpta), based on using an offshore floating terminal (OFT) to load bauxite onto a ‘capesize’ vessel (the largest dry cargo ships, which are too large to pass through the Suez or Panama canals, and so have to pass either Cape Agulhas in South Africa, or Cape Horn in Chile. In April this year, Metro Mining’s offshore floating terminal, Ikamba – the Ankamuthi name for saltwater crocodile, respecting the traditional owners of the local area – began loading bauxite onto capesize ships.
The Ikamba collaborates seamlessly with the existing single floating crane barge (FCB), TSA Skardon, doubling the operational throughput to up to 2,000 WMT an hour. And Ikamba is much better suited to stronger seas.
But throughput is expected to increase even further: Metro Mining recently finalised multi-cargo offtake agreements with (predominantly Chinese) customers that, along with existing contracts, escalate contracted offtake to 6.9 million WMT for 2025 and 6.1 million WMT for 2026. During July, the Ikamba/Skardon duo demonstrated loading rates that if sustained for a year, would reach throughput of 7.5 million tonnes a year. In the September 2024 quarter, a monthly record of 780,000 WMT was shipped, at a margin of $14 a tonne. The company said it expected to deliver at or above the 7 Million WMT-a-year rate in 2025.
The uplift in production is being delivered in a period of increasing tightness in the traded bauxite market and aluminium value chain as benchmark prices for bauxite and alumina rose strongly towards the end of the September quarter. Metro’s average delivered prices were up 14% year-on year, and contract prices are expected to increase further in the current quarter to close-out 2024.
The company says it is delivering into a strong market. Bauxite imports to China were 142 million tonnes (MT) in calendar 2023, a record, and 13% above those 2022. In the September 2024 quarter, the demand from alumina (aluminium oxide) production and thus, traded bauxite, continued to increase, with year-to-date imports in September up 12.7% over 2023. Alumina prices started to rise strongly again towards the end of the September quarter, to reach almost record levels, and that is flowing-through to bauxite market pricing. China literally can’t get enough of the stuff.
Last month, Metro Mining struck a refinancing deal with US-based mining financier Nebari that restructured its debt and ‘bought back’ a private royalty held by Nebari, converting to senior debt. The company said the transaction de-risks its balance sheet in the short term, reduces financing costs in 2025 by $4 million, and avoids shareholder dilution, with the overall effect of substantially de-risking its pathway into 2025, when the full effects of its 7 million-tonnes-a-year expansion will be evident, as it sells into a very strong bauxite market.
Analysts expect profitability at the net profit level this year (year to December) of about $19,000, rising to $120,000 in 2025. On that basis, the stock sells at a prospective price/earnings (P/E) ratio of 10.5 times projected 2024 earnings, with that P/E coming down to 2.9 times forecast 2025 earnings. Metro Mining is a very attractive story.
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