Amore Mio
The evening I met my future wife, I arrived at Café De Paris with another date. Sharon (not her real name!), from Newcastle, had introduced herself a fortnight earlier at the Cirque De Soir nightclub in London as freshly separated from her husband.
A Date with Destiny
Two weeks after we’d first met, Sharon was back in London; the date was 15 May 2014. Sharon enquired whether she should wear her leather corset with fishnets and stilettos or the elegant evening dress…you know which one I chose!
Pimps at Café De Paris
When Sharon and I arrived at the “Kids Voice Charity” gig at Café De Paris on Leicester Square, one of London’s most iconic nightclubs, I thought my date was looking a million bucks. My future wife later observed that she initially thought I was a pimp — first appearances can be deceiving!
Metal Mick the Chaperone
Mick McMullen, CEO of ASX-listed Metals Acquisition Corp (MTAL US$1 billion), was chaperone to Dave Sproule, founder and Executive Chairman of ASX-listed Polymetals Resources (POL A$150 million market cap). Mick previously ran Detour Gold Corp until its takeover by Kirkland Lake Gold in 2020 and Stillwater Mining Company until its takeover by Sibanye Gold in 2017.
Mick McMullen, CEO of Metals Acquisition Corp
So, when Mick mentioned that both he personally and MTAL were invested in Polymetals and that I should meet Dave, I took him at his word.
MTAL’s CSA Copper Mine is 40 km south of Polymetals’ Endeavour Mine in the rich polymetallic Cobar Basin.
A Rich History
Mining in Cobar, New South Wales, began in 1870 when copper was discovered near a waterhole in the English colony, leading to the development of the Great Cobar Copper Mine, Australia’s largest copper mine at its peak.
153 years after its discovery, Metals Acquisition Corp, led by Mick McMullen, completed the purchase of the CSA Copper Mine, formerly known as the Cobar Mine, from Glencore in June 2023 for $750 million cash, with up to US$1.1 billion including deferred and contingent payments.
The Electrolytic Zinc Company discovered the Elura Mine in 1974, later merging with the zinc assets of CRA, now known as Rio Tinto, to form Pasminco in 1988. The Elura Mine commenced commercial production in 1983 and operated continuously until 2019, producing on average 90,000 tonnes per year of zinc and lead metal plus almost 3 ounces per tonne of silver.
Elura has, in the past, mined exceptional supergene-enriched precious metals near the surface; Pasminco mined 100,000 tonnes containing 16 million ounces of silver and 30,000 ounces of gold—over half a billion dollars of contained silver plus $80 million of gold at today’s prices.
CBH Resources bought the Elura mine from Pasminco in 2003 and renamed it the Endeavour Mine. CBH lost control of Endeavour after they agreed to a ruinous 100% silver stream on the mine in 2005, leading to the A$360 million privatisation by Japanese zinc product manufacturer Toho Zinc.
The history of the Endeavour (Elura) mine
Polymetals Seizes the Opportunity
On 1 August 2024, Polymetals completed the purchase of the Endeavour Mine from CBH Resources, owned by Toho Zinc of Japan. The 100% silver stream with TSX-listed Metalla Royalty & Streaming (MTA) is now a 4% royalty on zinc, silver, and lead produced. In August 2024, Polymetals published the mine plan below, which showed it would produce, on average, over ten years, 26,000 tpa of zinc, 9,000 tonnes of lead, and over 1 million ounces of silver annually.
A casual glance at the forecast above would have you believe Polymetals is a zinc producer with a silver and lead by-product. Note that forecasts use $2,850/t zinc, $2,160/t lead, and $28/ounce silver.
It’s About the Silver, Mate
Polymetals describes itself as 'metal agnostic'; however, at $50/ounce silver, Polymetals’ Endeavour Mine would become a SILVER MINE with zinc and lead as by-products, and that’s BEFORE we talk about the possible upside from the supergene silver and gold.
At today’s metal prices, Polymetals will produce about A$100 million of EBITDA in 2025. The current market capitalisation of A$150 million and as-yet-undrawn debt of A$30 million suggest Polymetals is cheap, BUT this is NOT the main reason to buy Polymetals shares.
Like the partner you met before you met your one true love, Endeavour/Elura’s history of mainly zinc production is merely a warm-up for the real thing.
Arrived with Sharon, Left with Amore Mio
When I arrived at the Café De Paris nightclub in May 2014, I thought I was going home with Sharon from Newcastle. Then I met Lisa from Venice, aka "Amore Mio".
I had to work fast. Sharon excused herself to go to the bathroom, and Lisa and I were introduced. As Sharon returned from the bathroom, I returned from the bar, handing one of two martinis to Lisa, who handed me my phone. Sharon was pissed, but I didn’t care and spent most of the evening with 'Lisa the Martini Girl', her phone number saved. Destiny had intervened.
Amore Mio and guests watching the performance at The Kids Voice Charity, May 2014
Polymetals is NOT a zinc company, just as Sharon was not my Amore Mio.
The Investment Case for Polymetals
I own shares in Polymetals because:
Dave Sproule and his impressive track record building 11 mines in Australia (see footnote below).
Polymetals has 1,107 square kilometres of exploration potential in the high-grade prolific Cobar Basin.
When silver makes all-time highs above $50/ounce, Polymetals becomes a primary silver producer.
Primary silver producers are rare and trade at high valuations compared to their peers in 2024.
Source: ChatGPT
Polymetals’ 2025 cash flow at current metal prices is about A$100 million. Choose your preferred multiple above, and you will deduce that Polymetals may be Australia’s cheapest silver producer! If gold and silver prices continue to outperform zinc, Polymetals should enjoy multiple expansion as it becomes recognised as a silver miner. To our knowledge, there are no other primary silver producers listed on the Australian Stock Exchange today.
What Are the Risks?
Most single-mine companies with small balance sheets struggle at start-up. We think the risk with Polymetals’ Endeavour Mine commissioning, scheduled for May 2025, is low because Dave has done this before, eleven times. The former owners and operators of Endeavour used Fluor Daniel to build a 'Rolls Royce,' justified by the scale and grade of the mine. Toho Zinc, the most recent owner, has kept the plant and mine in good order. The Endeavour Mine is thus de-risked because the capital has been sunk, and the mine and plant are already developed.
The Endeavour Mine Surface Infrastructure (2019)
Endeavour, formerly the Elura mine, historically operated at less than 900,000 tpa versus its 1.2 million tonnes per year processing capacity. The bottleneck is the mine, as the Cobar Basin mines are typically vertically dipping, cigar-shaped orebodies. Hence, it makes sense that Polymetals will process third-party ore from MTAL to reduce costs by sharing overhead. MTAL's CSA Mine will use excess water from Polymetals’ Endeavour Mine and plans to process its zinc ore at Endeavour's plant, enabling better efficiencies at both mines.
Balance Sheet Is Tight
Polymetals has a modest current cash balance of A$7 million and an as-yet-undrawn A$30 million working capital facility from Ocean Partners, plus an A$28 million environmental bond secured by some of its freehold accommodation property infrastructure.
What Is the Upside?
Exploration. Polymetals owns 1,107 km² of exploration licences in the mineral-rich Cobar Basin, NSW, estimated to contain a pre-mining resource of 4.8 million tonnes of zinc, 2.8 million tonnes of lead, 2.5 million tonnes of copper, 202 tonnes of gold, and 4,597 tonnes of silver. The Endeavour Mine, expressed in gold equivalent terms, is bigger than its better-known neighbour, MTAL's CSA Mine. History informs us the best place to look for a new mine, is next to an old mine.
Endeavour is endowed
The current Polymetals budget for exploration in 2025 is a modest A$2 million. We would like to see that increased to at least $10 million per year and to target near-mine high-priority targets like the "Carpark" target, shown in green to the left of the Endeavour mine below. Dave and his exploration team are planning a workshop this month, November 2024, to consider their exploration priorities. Kiri and Furney's Tank are currently the favourite regional targets.
Pay Attention Precious Metal Bulls
Precious metals bulls should note Polymetals is targeting the "Upper North Lode" in their 2025 mining schedule. The Upper North Lode, like the South Lode 100 metres away and previously mined by Pasminco, includes spectacular small but valuable pods of supergene-enriched ore. The South Lode had grades up to 5,000 gpt silver, 9 gpt gold, 7% zinc, and 5.5% lead. Only 50% of the Upper North Lode is in the Endeavour reserves due to lack of drilling and a nugget effect.
The implication is Polymetals will likely mine more silver and gold in 2025 and 2026 as they target the rich Upper North Lode at Endeavour at record-high precious metals prices.
There might be a Rolls Royce in the car park
Up Close and Personal
If you got this far, you deserve to meet one of Australia's true blue “dinky di” Aussies, Dave Sproule, Executive Chairman of Polymetals. I recorded this 40-minute interview with Dave on 31 October 2024:
You tell me — is Endeavour Dave's masterpiece or just another notch in the bedpost?
Here are some snaps of Dave pouring a bar of silver at the Manuka Mine in NSW and of his kids Emily and Linden Sproule, corporate development at Polymetals, growing up on a mine:
After some persuasion and persistence, Amore Mio eventually believed I was not a pimp; we got married and have two amazing bambinas, Sofia and Sienna, along with Oliver and Jemima from previous. Amore reckons two are enough, but I’m not taking 'no' for an answer. The Catt progeny look forward to future dividends from Polymetals.
Dave Sproule, Executive Chairman and founder of Polymetals, has built 11 mines; Endeavour is his 12th and, in his words:
"Endeavour is hopefully the largest, longest life and most profitable of them all."
Here are some highlights:
Some mines which David built