Australian mining giant BHP (ASX:BHP) has decided to pull out of a deal with Havilah Resources (ASX:HAV), dealing a significant blow to the development of the Kalkaroo copper and gold project in northeastern South Australia. The decision has sent Havilah Resources' shares spiraling down by more than 20%, marking a challenging day for the exploration company.
BHP had initially acquired the Kalkaroo project through its $9.6 billion takeover of OZ Minerals last year. However, the company has now informed Havilah Resources that it will not exercise an option to acquire the Kalkaroo project, causing a 24% drop in Havilah's share price. As a result of this unexpected turn of events, Havilah's shares resumed trading on Wednesday at just 21 cents.
Michelle Ash, BHP's copper growth vice president, released a statement explaining the decision, indicating that BHP will redirect its efforts toward integrating OZ's Carrapateena and Prominent Hill copper mines with BHP's Olympic Dam mine and Oak Dam prospect in South Australia. She stated, "We believe that Kalkaroo is an attractive copper asset that will be developed, but our focus is on optimization of the Gawler Craton copper assets, specifically the West Musgrave nickel-copper mine near the WA border."
Havilah Resources, not willing to be deterred by this setback, has taken proactive steps to secure an alternative path for the Kalkaroo project. The company has engaged Deutsche Bank to assist in approaching potential interested parties. Havilah expressed optimism, with its chair, Simon Gray, stating, "We are optimistic that Havilah will secure another party for Kalkaroo because of the rarity of advanced undeveloped open pit copper-gold projects in the low sovereign risk environment of South Australia." Gray highlighted the project's potential scale, favorable logistics, Havilah's land ownership and mining tenements, and the advantageous backdrop of near-record Australian dollar copper and gold prices.
Key technical outcomes from BHP's work on the Kalkaroo project have lent support to Havilah's previous work. The conceptual open-pit mine life has been extended to more than 20 years, driven by factors such as higher long-term metal price assumptions and improved sulphide ore metal recoveries.
Havilah also retains full ownership of all surrounding exploration areas, where the Curnamona Province Strategic Alliance drilling has shown promising results from four copper prospects located within 15 kilometers of Kalkaroo.
To provide context, Havilah had entered into a Call Option agreement with OZ Minerals, which subsequently became part of BHP following the takeover, to sell the Kalkaroo Project. Simultaneously, Havilah also signed a Strategic Alliance agreement for copper exploration drilling on its exploration tenements around the Kalkaroo mining lease.
While BHP's decision to abandon the Kalkaroo project has been a setback, Havilah Resources remains committed to monetizing the project for a fair consideration, aided by Deutsche Bank. The company has already received expressions of interest from multiple parties.
As of the latest ASX Activity Report released on November 29, 2023, Havilah had a cash balance of $3.8 million, which is expected to fund its planned activities well into the current financial year.
Despite the challenges posed by BHP's decision, the groundwork laid by BHP/OZ Minerals positions the Kalkaroo Project favorably for a future liquidity event. With a robust financial model and the potential to extend the conceptual open-pit mine life, the project still holds promise. Additionally, opportunities for value addition, such as the uncompleted Phase 2 drilling program and promising prospects in the surrounding exploration areas, keep the hope of a successful development alive.
