Calidus Resources (CAI) - New Lithium JV Adds to Gold Pour Fever

Calidus Resources Limited is an Australian gold exploration and development company that is developing the 1.5Moz Warrawoona Gold Project in the East Pilbara district of the Pilbara Goldfield in Western Australia. The tenements at Warrawoona formed the Warrawoona Gold Project, which was consolidated in the contiguous, highly-prospective package by Calidus Resources in 2016-2017. The consolidation of this goldfield has transformed the company into a new Australian gold development company with significant potential to unlock further resources and new discoveries within the emerging gold belt of the Pilbara Goldfields district, which is a historically proven gold mining region.

Matt Gordon caught up with David Reeves, Managing Director, Calidus Resources. Mr. Reeves is a mining engineer with over 3 decades of experience in the mining industry. He currently serves as a Director of Keras Resources Plc. David has extensive experience in international capital markets through his involvement with various listed London and Australian companies. David has a first class WA Mine Managers ticket and a Graduate Diploma in Finance and Investment. He has over 20 years of experience in gold and precious metals development. 

Company Overview

Calidus Resources Limited is a gold exploration and development company. The company was founded in 1986 and is headquartered in Australia. It is listed on the Australian Stock Exchange (ASX: CAI). The company’s major assets include the Warrawoona Gold Project and the blue Spec Gold Project. 

Calidus Resources is developing the Warrawoona Gold Project in the Pilbara region of Western Australia. The stage 1 target is to produce 90,000oz per annum.  In stage 2 of the operation, the company will ramp up production to 130,000oz per annum. Last week, the company started plant commissioning and is rapidly approaching the first gold pour. 

Since September, the company’s share price has observed an upward trend, growing from $0.56c to $0.82c. The company anticipates that it will continue to see sustained growth if operating conditions remain favourable. Notably, the broker coverages have much higher target prices than the current stock price.

Plant Commissioning

Calidus Resources is in the process of commissioning its plant. This is a long process that involves detailed power testing to ensure safety. It also requires pumping motors to ensure the right directional flow and leak checks. Commissioning is a sequential process that can take up to 8 weeks. It involves both dry and wet test runs. Ore is introduced into the plant sometime before the end of 8 weeks. It takes about 2 weeks to get the first gold post the commissioning stage. The plant operation is relatively simple even though it has a long commissioning process. The company anticipates that it will conclude the process by the end of the June quarter and reach nameplate capacity. 

The fields have been commissioned and the water pond at the plant is full. The company has successfully installed and powered up the 9MW (MegaWatt) power station. The company has sourced the required reagents and the CIL (Carbon In-Leach) tanks, where the gold will be dissolved. The ancillary buildings are also ready. 

Calidus Resources announced the commissioning of its plant last week and discussed the VSD (Variable Speed Drive). Notably, VSD is a complicated piece of equipment responsible for turning the mill. The VSD is running seamlessly at the moment but in case of problems, corrective measures can be a time-consuming process. 

The company has successfully erected the mill structure with the gravity gold cyclones and line silos. The transfer station is complete and is nearly ready to take ore. The installation of conveyor belts and electrical work is pending. When the mill is turned on, the company expects to have 200,000t of ore on the pad. The pad has started to fill up and currently has 100,000t ore. 

The company has arranged bigger trucks and digging vehicles for the site. Notably, the company has 40t articulated tow trucks at the top of the mountain. As the mountain gets levelled, the company is bringing in the bigger kit with a couple of 200t trucks. All the vehicles are currently on-site and are planned for assembly in the coming week. This, in turn, allows the company to ramp up the mining end of the operations as well.

Project Economics

Calidus Resources’ AISC (All-in Sustaining Cost) is AUD$1,300/oz. The company expects an increase in costs in terms of diesel and explosives. A steep increase in labour costs has also been observed in the last 6 months. The company is anticipating a 5%-15% cost increase over the AUD$1,300 AISC.

Based on the current AUD$2,650/oz gold price, the company still manages to maintain a healthy AUD$1,000/oz margin, despite the increase in costs. 

It estimates that the operating costs will normalise with time, especially for diesel and fertiliser that goes into explosives. It is looking to upgrade the airport at a local level, which has observed a 30% cost increase over the last year.

Due to the ongoing price escalations, people are less likely to quote developmental costs as they are unsure about the supply and delivery timings. Labour-related challenges further contribute to the risk factor. 

The company’s capital requirements are nearly complete as it is commissioning. It is now focused on operations. The company’s main costs are labour and fuel and it has about 5%-10% CapEx (Capital Expenditure) available. Notably, global fuel prices have also seen an increase in recent times. 

As part of the financing, the company borrowed $110M and hedged 145,000oz gold at AUD$2,400/oz over the next 3 years. This allowed the company to minimise dilution and maximise shareholder value. The company is currently focused on commissioning gold bars and based on operations, it might consider hedging in the future. 

A Lithium Joint Venture

Calidus Resources has expanded its business into the lithium market. Its assets are based in a highly-favourable geological environment, the Pilbara of Western Australia, one of the major lithium exporters in the world. The company’s entry into lithium has the potential to generate opportunistic value for shareholders. 

Calidus Resources looked at other tenements and coordinated with Haoma Mining to enter the lithium business. Both companies have worked together in the past. A decision was made for both companies to combine resources for entering the lithium market. This association is a 50:50 joint venture between Calidus Resources and Haoma Mining. 

The company has put together about 1,000 square kilometres of really good lithium tenure in the East Pilbara. The majority of the mines here are old lithium mines from the 1900s. Today, the company announced the Spear Hill area, an old tin tantalum area that hasn’t seen much lithium exploration. 

As a forward-facing metal, lithium has seen massive price spikes in recent times, serving as a great opportunity to enter the market. Though the company’s major focus is on gold, it anticipates that there’s a good chance to find lithium as well. 

The company’s lithium venture was put together 2 months ago. It benefits from being in the same area as the gold projects. The existing infrastructure can be utilised for both gold and lithium exploration. So far, the company has found material outcropping at the surface. The company’s team is currently identifying rocks and carrying out area mapping. So far, the team has identified a 1km high prospect zone. Calidus Resources has plans to form a separate team for its lithium joint venture. The company will also hire geologists as part of the team. 

Capital Allocation

Currently, Calidus Resources is spending $10M per month in operating costs for its lithium joint venture. It is looking to set a $5M budget between both parties for the first year of operation. Given the company’s cash flow, this would be a minor amount that could serve as a significant value-enhancer for the shareholders. 

The company has already put lithium rights on some of the tenements, while its joint venture partner has put its lithium rights into a new company. There are plans to spin this new company as a new listing. This would lead to the assignment of new shareholders and capital.

Presently, the company’s lithium business is a pure-play exploration. Mr. Reeves has had part-time involvement in lithium for over 5 years. He was the Chairman and Founder of European Metals, a company with a big lithium mica deposit, the Cinovec Lithium and Tin Project in the Czech Republic. 

This project already has spodumene with lepidolite. Notably, the lepidolite is processed into hydroxide and carbonate by the Chinese. Lepidico, an Australian company is setting up a pilot plant in the UAE. The company has a strong lithium background. Calidus Resources has a substantial shareholding in European Metals and is looking to make full market disclosure for the same. 

Both joint venture partners for the lithium business are open to a company listing. As a result, the ongoing operations are publicised for market evaluation. In case of a spin-out, the asset will generate value in terms of the share price. 

In the early days of the Warrawoona project, Calidus Resources brought some tenements from its joint venture partner. Both companies have a strong working relationship. Based on the asset’s value generation potential, future decisions on funding, percentage allocation, and third parties will be made. 

The company is looking forward to an exciting 3-6 months. During this time, the company will ramp up its operations, pour the first gold, commence drilling for lithium and kick off this year’s gold exploration. It is also awaiting assay results from last year’s exploration. 

To find out more, go to the Calidus Resources website