Coda Minerals - Compelling Junior Unlocking Value in South Australian Copper-Cobalt

• Coda Minerals is a junior copper explorer with a promising project in South Australia
• Recent optimization work has increased the project's NPV by 30% to A$826 million pre-tax
• The project has robust economics even at current spot prices for copper and cobalt
• Coda is focused on further optimization to improve project metrics and attractiveness to funders
• The goal is to find the right strategic partner to help advance the project to production

Coda Minerals: A Compelling Copper Opportunity

In a world increasingly focused on electrification and decarbonization, copper stands out as a critical metal with robust long-term demand fundamentals. One junior copper explorer that warrants investor attention is Coda Minerals (ASX:COD), which is advancing a highly promising copper-cobalt project in South Australia. With a large resource base, strong project economics, and a clear path to value creation, Coda presents a compelling opportunity in the junior copper space.

The Project

Coda's flagship asset is the Elizabeth Creek Copper Project, located in the heart of South Australia's copper country. The project boasts a large JORC resource of over 500,000 tonnes of contained copper and 53,000 tonnes of contained cobalt across three main deposits - MG14, Windabout, and Emmie Bluff. Notably, the deposits are relatively shallow and remain open, providing substantial exploration upside.

In March 2024, Coda released a positive Scoping Study on the project, which outlined an initial 11-year mine life producing 25,000-27,000 tonnes of copper and 1,300 tonnes of cobalt per annum. Using consensus long-term pricing assumptions, the study pegged pre-tax NPV at A$826 million and IRR of around 30%. Critically, Coda has identified several opportunities to optimize and enhance the project further.

Optimization Potential

Since the initial scoping study, Coda has made significant progress in optimization work to improve the project's economics and de-risk the development pathway. In particular, the company has focused on the underground portion of the mine plan at the Emmie Bluff deposit.

Through this optimization work, Coda has been able to increase the pre-tax NPV by an impressive 30% to A$735 million.

As CEO Chris Stevens explains, "Since the scoping study, we've been working hard at optimizing the study. We've put out two updates - The first was a change in mining method, which increased the NPV by about 30%, so it went from A$570 million to A$826 million on a pre-tax basis. Then we put out another update two months after that looking at improved efficiencies within the underground portion."

Importantly, Coda sees further room for optimization, with Stevens noting, "We haven't been sitting here waiting. It's been about getting out there and improving the project, taking those metrics up to the hurdle rates that we know serious groups look for." Stevens believes there are opportunities to enhance the project through additional drilling to expand the resource, implementing a flotation circuit to boost recoveries, and optimizing the mine schedule.

This continued optimization work aims to get the project to a stage where it meets the investment criteria of large strategic players in the copper space.

Stevens points out, "Having spent a significant amount of time talking to the kind of groups that fund these projects, I know what they're looking for... People are looking for scale, grade, and economics. We're looking at 25,000-27,000 tonnes of copper per annum and strong economics."

Unique Cobalt Opportunity

While Elizabeth Creek is, first and foremost, a copper story, the significant cobalt endowment adds an interesting dimension for investors. Cobalt, which is critical for lithium-ion batteries, is a market facing looming deficits as electric vehicle production ramps up.

Most cobalt projects in Australia face metallurgical challenges due to the mineral form of the cobalt. However, Elizabeth Creek is unique in that its cobalt is hosted in a rare copper-cobalt sulfide mineral called Carrollite. As Stevens explains,

"We've got carrollite. Carrollite is a pure copper-cobalt sulfide, meaning it floats beautifully. We're getting over 90% flotation recoveries and up to 97% recoveries through pressure oxidation. That is a huge advantage for this project."

Even at current spot prices, the cobalt contributes meaningfully to the project's economics. But perhaps more critically, it provides strategic appeal. Cobalt supply is dominated by the Democratic Republic of Congo and there are concerns about the security and sustainability of future supply. Elizabeth Creek, with its favorable mineral form and location in the stable jurisdiction of South Australia, is well placed to capitalize on this thematic.

Funding Pathway

As a junior company with a market capitalization of just A$20 million, the key question for investors is how Coda intends to fund Elizabeth Creek through to development. Advancing a project of this scale is capital-intensive, and will require a well-crafted funding strategy.

Coda's preferred pathway is to bring in a strategic partner to help develop the project. The company has proactively engaged with potential suitors and assembled a comprehensive data room. As Stevens notes,

"The organized projects, the projects that present themselves in the best light, do get the funding. You've then got to structure that funding right—the plan is to find the right partner to help us take this forward. There are groups out there looking for earlier-stage projects."

While a strategic partnership is the priority, Coda is keeping its options open and is also considering alternative funding pathways such as a partial asset sale or joint venture arrangement. Importantly, the company is not currently contemplating a large dilutive equity raise to fund the entire project.

In the near term, optimization work will remain the key focus. Coda recently raised A$2.8 million to strengthen its balance sheet and provide funding to advance key workstreams. The company will seek to continue enhancing the project and achieving milestones that further de-risk it in the eyes of potential financiers.

Coda Minerals presents a compelling copper-cobalt opportunity, underpinned by the Elisabeth Creek project in South Australia. With a large resource base, robust economics, and multiple avenues to further optimize returns, the company is well-placed to benefit from the strong long-term fundamentals for copper and cobalt. Management has a clear strategy to advance the project and unlock value for shareholders through a future strategic partnership or other funding pathway. Although still in the early stage, Coda offers investors an attractive risk-reward proposition and warrants close attention as it progresses over the coming 12-18 months.

Key takeaways

• Coda offers exposure to the compelling long-term demand story for copper and cobalt, driven by electrification and the energy transition
• The Elizabeth Creek project is economically robust and retains significant optimization potential
• A strategic partnership to help fund the project through to development is the preferred pathway, but management is considering multiple options
• Upcoming catalysts and milestones have the potential to drive a significant re-rating of the stock

Investment Thesis for Coda Minerals

• Exposure to the compelling long-term copper demand story: Copper is a critical metal for the energy transition and demand is forecast to outstrip supply over the coming decade significantly. Elizabeth Creek provides investors with exposure to this macro thematic.
• Large, high-quality resource with exploration upside: The project has a substantial resource base with over 280,000 tonnes of contained copper and an initial 11-year mine life. The potential for growth of this resource is considered high.
• Robust economics and optimization potential: The project is economically attractive even at current spot prices and the company has a clear roadmap to further improve returns through optimization work.
• Strategic cobalt potential: Elizabeth Creek is unique among Australian cobalt projects due to its favorable mineral form. The cobalt endowment enhances the funding options and provides a point of differentiation.
• Attractive valuation: Coda currently trades at a deep discount to its peer group and the project NPV, providing a compelling entry point for investors. As the company continues to hit milestones, there is potential for significant re-rating.
• Upcoming catalysts: Key catalysts for Coda over the coming 12 months include further optimization work, resource growth and conversion, completion of the pre-feasibility study, and progress towards securing a funding solution.

The Copper-Cobalt Macro Thematic

The energy transition is driving a structural shift in demand for copper and cobalt. Copper is critical for electrification, with electric vehicles using up to 4x more copper than internal combustion engine vehicles. Meanwhile, cobalt is a key component in lithium-ion batteries, which are the dominant technology for electric vehicles and energy storage.

On the supply side, there is a dearth of new copper projects in the pipeline after years of underinvestment. Existing operations are facing declining grades and depleting reserves. This supply gap is expected to result in significant deficits and strong copper prices over the medium term.

The situation is even more acute for cobalt. Over 70% of the world's cobalt is mined in the Democratic Republic of the Congo. This concentration of supply, combined with concerns around ethical sourcing and political stability, has fueled concerns about the security of cobalt supply to meet burgeoning demand from the battery sector.

In this context, a project like Elizabeth Creek, which boasts both copper and cobalt, takes on a new level of strategic appeal. As Coda CEO Chris Stevens puts it, "There is no scenario in which it makes sense just to forget about the cobalt in this project." The combination of a large, high-quality copper resource and a unique cobalt opportunity in the stable jurisdiction of Australia makes for a highly attractive proposition in the current macro environment.