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AOU starts Scoping Study as 6 hole Nickel drilling campaign commences

September 01, 2021 | Price:$0.165

Auroch Minerals (ASX: AOU) is our WA nickel investment that is exploring three nickel projects all within trucking distance to BHP’s Kambalda nickel smelter. 

BHP is investing a lot into WA nickel after striking a supply agreement with Tesla and has plans to restart its nickel smelter early next year. BHP wants to buy nickel from third parties like AOU. 

In order to progress its nickel production ambitions, and armed with its offtake agreement with BHP on one of its projects, today AOU kicked off scoping studies across two of its three WA nickel projects

These scoping studies are important as they will evaluate the economic viability of mining nickel. This is a big step for AOU that may lead to nickel sulphide production and cash flow in the medium term. 

AOU is confident in bringing both projects forward to production and generating “significant cash flow” for the company in the medium term. With the nickel price consistently around US$19,000/t and forecast to increase, AOU is eager to evaluate the economic viability for several different mining scenarios at these two projects.

But the main activity of interest to us is AOU drilling six holes in the “Nepean Deeps” over the next three months and the assay results from that programme.

We invested in AOU at 25¢ back in March this year and it’s currently sitting at ~17¢ – we were hoping the AOU share price would have delivered a better start for us but we are long term holders and back the AOU management team to deliver so are happy to wait. 

We are waiting for any remaining sellers to wash through and hopefully AOU delivers some decent nickel hits in the next 12 weeks. AOU will likely need to raise cash after these 6 ‘Nepean Deeps’ holes are finished, so we hope it’s at a much higher level after a big nickel intercept.

Here is all the latest on AOU since our previous update

AOU is drilling RIGHT NOW beneath a historic nickel mine 

Our favourite AOU project is the Nepean project, a historic nickel mine that used to feed BHP’s nickel smelter. 

AOU is exploring around and beneath the nickel mine, hunting for extensions of mineralisation. 

AOU’s first drill hole has reached a depth of 400m and target depth is probably a week or so away. We expect to get a lot of updates on this drilling campaign from AOU over the coming months. 

We think this is an exciting drill programme that’s happening right now. AOU is planning at least six deep holes to drill test targets over the coming weeks. 

Any large, high-grade nickel intercepts would be a major catalyst for AOU. 

🔄  Drilling 3,000m (Nepean Deeps) – 6 diamond drill holes beneath historic nickel mine
🔲 Downhole EM Surveys at Nepean Deeps drill holes
🔲 Assays Results 1
🔲 Assays Results 2

AOU secured an underwriting for remainder of outstanding options – $1.64M incoming taking cash balance to over $4.3M 

AOU had cash reserves of $2.7M at 18th August, and as of that date there were 16.44M options with a strike price of $0.10 that remained unexercised. The expiry date of the options is 30 November.  

Getting those options exercised is important for the company as it means another $1.64M into AOU’s bank account. That would give it a total of $4.3M, which should fund the completion of the six hole diamond drill program at Nepean. 

This funding has now been secured via an underwriting agreement. For any unexercised 10​​¢ options that exist at 30 November, the underwriters have agreed to subscribe for AOU shares at 10¢

We also suspect the 10c options have been a weight on the share price over the last 12 months.

If the Nepean Deeps drilling is a big success we expect a positive rerate on AOU shares. At that point it’s likely that AOU would need to raise additional capital to fund the next stage of exploration, probably at a much higher share price. 

So until either a strong exploration result comes in, or the expiry date of 30 November passes, we expect some pressure on the AOU share price.

✅ Portfolio Launch
🌎Tesla Deal with BHP
🔄 10c options conversion (November 30th 2021)
🔲 Project Funding 1
🔲 Project Funding 2
🔲 Unexpected Positive Announcement 1
🔲 Unexpected Positive Announcement 2
🔲 Unexpected Positive Announcement 3

Down hole EM surveying identifies more drill targets at Leinster nickel project 

AOU recently ran an RC drilling programme at the Leinster project and final assay results came in earlier in August. While it intersected disseminated nickel sulphides, it looks like the market didn’t think the intersections were wide enough or at a high grade. 

Two DHEM conductors were identified by the first phase of drilling. These provide high priority walk up drill targets that will be tested on the next drill campaign at this project, expected later this year. 

✅ 1,200m Diamond Drilling (Horn)
✅ Assays Results
✅ 1,800m RC Drilling Programme (Horn)
✅ Assay Results
✅ Down Hole EM Survey
🔲 New Milestones Added

AOU today announced it is kicking off scoping studies.

As we mentioned above, Scoping Studies have begun on two AOU projects – Saints and Nepean.

Saints is the project that AOU has an existing offtake agreement in place with BHP. The project has an existing high grade nickel resource of 1.05mt, grading 2% nickel for over 21kt of contained nickel. 

Nepean also has historic high grade nickel sulphide resources. 

The Scoping Studies will assess the viability of open pit mining at Nepean and what underground mining at both Nepean and Saints might look like from a technical and economic perspective. 

This is a big first step in getting AOU towards possible near term nickel production and cash flow. And the timing looks good, with BHP preparing to restart its Kambalda nickel operations early next year, and will be hunting for more local nickel resources to feed it.

Why we continue to hold AOU shares  

We invested in AOU earlier this year, adding it to the Wise-Owl portfolio at 25¢. 

We are bullish on nickel as it is essential for electric vehicle batteries and is in high demand —  a key reason for our investment into AOU. 

The nickel price is consistently around the US$19,000/tonne and is forecast to increase. 

BHP is also very bullish on nickel, especially after its recent supply agreement with Tesla, and has been upping its investment in its nickel operations and demanding more nickel from WA producers and explorers. 

BHP is restarting its Kambalda nickel operations early next year and will need third parties like AOU to supply it with nickel. 

AOU’s goal is to deliver a 100kt nickel in resource inventory across its three projects in WA. Each of these projects are within trucking distance of BHP’s Kambalda nickel smelter.  

So BHP would be a natural buyer for economic sources of nickel that AOU find. It helps a lot that AOU already has an offtake agreement in place with BHP on one of its projects (Saints) and has developed a good relationship with BHP’s processing team.  

What’s next for AOU? 

We are keenly watching for results from the Nepean Deep drilling campaign that just started.

Main ‘Nepean Deeps’ Drilling Event

🔄  Drilling 3,000m (Nepean Deeps) – 6 diamond drill holes beneath historic nickel mine
🔲 Downhole EM Surveys at Nepean Deeps drill holes
🔲 Assays Results 1
🔲 Assays Results 2

Additional Project Milestones

✅ RC Drilling Programme 1 (shallow)
🟩 Assay Results
✅ Nickel Sulphide Mineralisation identified along strike
✅ RC Drilling Programme 2 (shallow)
🟨 Assays Results 1
🟨 Assays Results 2
✅ Diamond Drilling (shallow target around Nepean )
🟩 Assays Results
✅ Moving Loop Electromagnetic Surveys
✅ Drill Targets Identified
🔲 Results from Drill Testing
✅ Scoping Study Begins
🔲 JORC Resource Estimate

Our AOU investment milestones

✅ Initial Investment: @ 25c
🔲 Increase Investment
🔲 Increase Investment
🔲 Price increases 250% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 12 Month Capital Gain Discount
🔲 Free Carry
🔲 Take Profit
🔲 Hold remaining Position for next 2+ years

 

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