Canada-based Freeport Resources Inc. (FRI:TSX.V) pulled in considerable private capital during the past month, reporting the close of a CA$1.4 million tranche on February 3 and a further CA$633,000 tranche on Feb 28.
The newly-secured funds will be deployed in the development of its copper and gold project located in Papua New Guinea. Freeport’s focus is the Yandera project, one of the largest undeveloped copper deposits in the world, located approximately 95 kilometers southwest of the city of Madang. It’s located in the Bismark Mountain Range in Papua New Guinea.
Freeport’s umbrella casts a large shadow, with numerous subsidiaries including Marengo Mining (Australia) Pty Limited, Yandera Mining Company Limited and Yandera Mining Company (Holdings) Pty Limited.
Announcement of Exploration License Renewal
Monday, March 6, Freeport announced the Papua New Guinea Mineral Resources Authority (MRA) had notified the company of the renewal of exploration license EL 1335, which covers the concession comprising the Yandera copper project. The renewal was granted for a term of two years ending in November 2021.
The company will now update this license previously submitted, alongside the submission of documentation for the next two-year period, commencing November 20, 2023, which will be due before August 19, 2023.
Freeport has been informed by the MRA that they will only be required to conduct one Wardens Hearing for both submissions and the MRA has said it will do everything it can to facilitate the smooth restoration of the Yandera tenement to active status.
The Catalyst: Capital Influx as Copper Demand Increases
These two new injections of cash provide the company with the opportunity to better meet the industry’s growing demand for copper by moving its holdings into a production phase.
Whether the new funds are ultimately used for exploration, development, or holdings expansion, they couldn’t come at a better time, as copper prices seem poised for a sizable boom.
Why This Industry? Copper is Hot
A recent article by Cecilia Jamasmie, Senior Editor of Mining.com, lays out the coming crunch in copper supply. "Chile’s state-owned mining company Codelco, the world’s biggest copper producer, warned . . . that global shortages of the metal may reach eight million tonnes by 2032, as soaring demand continues to offset new projects numbers," she writes.
"Maximo Pacheco, chairman of the board of Codelco, said at an industry conference that while a surplus is expected in the short term due to new projects in Chile, Peru, the DRC, and China’s Tibet region, medium to long-term demand will eclipse supply further down the line."
Jamasme quotes Pacheco as saying that since "some copper deposits are in the process of stopping production and that other projects are in the process of starting operations, it is estimated that the deficit will be almost eight million tonnes in ten years."
A recent Goldman Sachs Equities Report projects a similar shortfall. "Global copper supply disruptions are expected to finish the year at 1.6mt, a historically high level and 500kt above GS initial forecast," the report explains.
A recent Goldman Sachs Equities Report projects a similar shortfall. "Global copper supply disruptions are expected to finish the year at 1.6mt, a historically high level and 500kt above GS initial forecast," the report explains.
"This is mainly explained by a series of mining issues in two key producing regions in LatAm, Chile, and Peru. In addition to operational challenges and community protests, production has been impacted by declining grade quality, water disruption-related issues, and slow project ramp-up."
"GS anticipates unexpected disruptions to trend toward more normalized levels in 2023, but we also now project a lower supply growth rate at 3.6% (vs. 6% before). This reflects a number of downgrades across copper operations over the past quarter, as producers increasingly signal the factors that have generated underperformance this year are set to remain as headwinds into next year."
"On the demand side, GS Global Commodities team highlights that marginal reduction in non-green demand (both in China and DMs) is offset by ongoing renewables demand strengthened by an expected 2.7% global refined demand growth for 2023."
"Investors have been concerned about both copper supply growth and demand weakness into 2023 before a structural deficit materializes into the end of the decade. But the GS global commodities team believes the combination of weaker than expected supply, resilient demand, and record low inventories is likely to result in a 178kt deficit already in 2023."
The transition to clean energy requires massive increases in copper supply. Higher copper prices will be required to incentivize the production of more copper from existing and new mines.
Recent advances in copper catalyst technologies have opened an entirely new, low-cost processing route that could potentially be applied to Yandera and other large yet lower-grade sulfide copper deposits.
These technologies, which allow for the treatment of lower-grade sulfide ores as oxides via a standard SX/EW circuit, are currently employed and being tested at various copper projects in both North and South America by Jetti Resources and Rio Tinto’s Nuton Venture.
The technology is a potential game-changer for lower-grade copper sulfide deposits, so Frontier Resources Inc is currently evaluating it for use at the Yandera project. If such methods prove to be viable, this could greatly enhance the feasibility of Yandera by significantly reducing the capital and operational expenditures required to transition the project to production.
Why This Company? Huge, Existing Project With Incipient Relicensing
Freeport’s Yandera copper project was previously held by the Sentient Private Equity Fund, a US$2.7 billion specialist mining PE fund. Sentient spent approximately US$200+ million in engineering and feasibility studies but was forced to sell the site when its portfolio had to be liquidated.
Analyst Clive Maund said, "Freeport Resources is looking like an attractive speculative play here ."
The project is held under a two-year renewable exploration license which has expired but was renewed nine consecutive times previously.
The elections in Papua New Guinea in the summer of 2022 resulted in several new appointments at the Mineral Resources Authority. The bottlenecks that had existed for the past three years, primarily as a result of the pandemic and other political concerns, are easing.
As per recent discussions with the government, the company management is hopeful that the license will be renewed in the first half of 2023.
Why Now? Undervalued
At the current market price of CA$0.05 per share, the company has a market capitalization of only CA$6 million. If, as the company hopes, the Yandera license is renewed in the first half of this year, shares will likely undergo a significant re-rating.
Additionally, if the new catalyst technologies currently being examined are found suitable for deployment at the Yandera project, they could smooth and expedite its transition into production.
Analyst Clive Maund published an opinion on March 1 that "Freeport Resources is looking like an attractive speculative play here not just because it has dropped from a peak approaching CA$0.95 in 2020 to the current very low price of just under CA$0.05, but also because it has completed a large downsloping Pan & Handle base that has been accompanied, in its latter stages, by a very positive volume pattern that reveals persistent accumulation."
"The strong break clear above the falling 200-day moving average early last month certainly looks like the first impulse wave of a new bull market.
So the positive news that came out after the market closed last night that the company has successfully completed the second tranche of financing means that there is now little to restrain it and it could take off higher at any time, especially of course if the metals sector takes a turn for the better, as looks likely"
Ownership and Share Structure
Streetwise Ownership Overview*Management, directors, and advisors own some 20% of the outstanding shares. According to Reuters, top shareholders in management include CFO Scott Davis, who has 0.32%, with 0.40 million shares, President Gord Friesen who has 0.16%, with 0.20 million, and Director Allen Glowach has 0.16%, with 0.20 million.
Investors Canaccord, Haywood, and Echelon own another 30%, for their retail clients.
There are not currently any strategic investors, although management is in discussion with potential strategic partners.
The firm has CA$2.5 million in the bank, with a monthly burn rate of CA$50,000 and no incipient drilling costs, as the Yandera deposit has already been extensively explored and drilled.
According to Stockwatch, Freeport Resources Inc has a market cap of CA$6 million. After its most recent financing round, the company has 139 million shares outstanding, as well as 60 million warrants and 5.2 million options. The warrants are all at much higher strike prices (10 to 40 cents) than the current market price of CA$0.05.
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