Capricorn Metals’ Wait Is (Almost) Over

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Environmental approvals for Capricorn Metals’ significant Mt Gibson gold project have taken much longer than thought, but there might just be light now at the end of the tunnel.

• Capricorn Metals awaits government approvals
• Together, Karlawinda and Mt Gibson expected to take production to over 300kozpa
• Capricorn preferred as a low cost, high quality miner
• UBS initiates coverage

By Greg Peel

Gold producer Capricorn Metals ((CMM)) operates the Karlawinda gold project in the Pilbara region of WA and is developing the Mt Gibson gold project in mid-west WA.

Both are large, low cost, predominantly open pit projects with simple flowsheets (the process of crushing, grinding, floatation etc) making for a simple investment case, UBS suggests, with the company having a good track record of project delivery and solid in-house capability, as well as a steady and reliable operational delivery.

Capricorn has guided to FY26 production of 120koz at an all-in sustainable cost of $1,580/oz at the midpoint, and a pathway to in excess of 300kozpa by FY29.

The miner produced 30.4koz of gold in the March quarter and retained FY26 guidance, noting that production was tracking toward the higher end of the guidance range, with costs also tracking toward the higher end.

Macquarie noted higher costs were due to elevated royalties from higher gold prices, not operational issues.

We note the (AUD) gold price peaked at $7650/oz in February and ended March at $6760/oz. It is now down to $5830/oz.

The 2023 Mt Gibson prefeasibility study envisioned a circa 150kozpa production centre, fed by the redevelopment of 7km strike of historic open pits, which, with steady state 150kozpa from an expanded Karlawinda (to complete in the September quarter), would take Capricorn’s group production to the targeted 300kozpa-plus by FY29.

Red Tape

While the Mt Gibson study indicated first production in December last year, the pathway through both State and Federal environmental permitting processes has significantly slowed the project.

With the imminent completion of the Federal process, Capricorn can move to the final stages of the State process. While there are still risks to further timeline extensions, UBS thinks they are now measured in weeks, rather than months (or even years), with a read of the legislation indicating a mid-November sign-off –- eleven months later than initially anticipated.

Indicative of the longer-than-assumed approval process, Capricorn noted at its March quarter update that Mt Gibson permitting was “well progressed”, with Federal approval now under assessment and the state process advancing in parallel.

Early works, design and long-lead procurement were continuing ahead of approvals, reflecting confidence in the process, however exact timing of full-approval remained uncertain.

Jarden suggested at that time that approval appeared “imminent”, with Capricorn having moved into the final stage of the Federal environmental approvals process.

Federal approval would represent a significantly positive de-risking event, in Jarden’s view, with State approval likely to be more procedural in nature, and follow within a circa three-month period.

Jarden expected full approval by the September quarter, supporting a development timeline of first mining in FY27 and first gold production mid-early 2028.

Now assuming a mid-November sign-off, UBS models first production in the March quarter FY28 and an expansion to 6.5mtpa, hitting nameplate in the March quarter FY31, taking steady state production to circa 220kozpa.

Exploration Upside

While current projects are predominantly above-ground, underground drilling at Lexington has confirmed a large, high-grade extension to Mt Gibson, Macquarie notes, with all initial holes intersecting strong mineralisation below the current resource.

Results demonstrate more than 900m of strike, more than 500m depth continuity and a clear link to the Orion South system, materially upgrading confidence in a significant, long-life underground development and supporting near-term resource growth and project optionality.

The Golden Range project, some100km from Mt Gibson and acquired last year, presents as the blue-sky growth option, with 1moz of resources but a more complex flowsheet likely required. UBS leaves Golden Range out of its base case for now.

Jarden nevertheless continues to highlight the hidden value associated with a potential antimony circuit at Golden Range (Ricciardo deposit).

Top Pick

Post the March quarter update, Jarden highlighted Capricorn Metals as its preferred gold exposure for its absolute and relative valuation appeal, sector leading growth, strong management, and an expected materially positive catalyst in the form of Federal environmental approval for the Mount Gibson project.

However, at the time, Jarden expected Federal approval would have been reached by now. Jarden retained an Overweight rating with a $13.80 target.

Macquarie has an Outperform rating with only an $11.80 target.

Earlier in June, Bell Potter declared Capricorn Metals and Evolution Mining ((EVN)) to be key picks as high margin, quality producers. Bell Potter has a Buy rating on Capricorn with a $16.25 target.

UBS has now initiated coverage of Capricorn Metals with a Buy rating and $17.00 target.

Capricorn is well funded to complete the Mt Gibson build, UBS notes, forecasting net cash of $463m in FY26, with sector leading production growth on a 21% five-year compound annual growth rate, and excess cash available for further reinvestment as well as growing capital return options.

UBS models a conservative 1% dividend yield to FY30.

Also updating following the March quarter update, Canaccord Genuity retained a Buy rating, but given Mt Gibson first production had been pushed out further by the approval delay, cut its target to $19.85 from $20.10.

Ord Minnett has a Buy rating and $24.00 target, but has not updated on Capricorn since January.

All of the above-mentioned brokers retain Buy or equivalent ratings on very wide spread of targets.

The shares closed at $14.19 in yesterday’s session.

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