You're listening to The Whole Truth, a Resources Rising Stars podcast. Hello and welcome to this episode of The Whole Truth podcast. I'm Paul Armstrong. It's been a bit of a rough week for investors on the share market in the resources space. Some horror announcements from some of the bigger companies, poor lithium prices have been taking their toll. BHP and Rio certainly rocked people with lower than expected dividends and the like. But there's one man who stands out from the pack this week, that's Alex Dorsch. He's a managing director of Chalice Mining. Not to say Alex hasn't had his rough times too. 18 months or so ago he published a scoping study on the company's Gonneville project and the market didn't like some of the costs and where it was going to. He's been busy behind the scenes and wow, hasn't he turned up something for the books this week. They've announced a new flow sheet for the treatment of their metals coming out of Gonneville. Metallurgy can be as complicated as you like, but the simple solution here is that this will cut operating costs, it'll cut capital costs and certainly de-risk the project. Alex says he's back in business. He's a man with a new chemistry set. After applying a whole lot of tests in pilot testing, he now says he's up and away. The project is now well back on track. A PFS is due around the middle of the year and he's eyeing the advantages that are coming with the turn. And he says the market's turning in his favour. The shift to hybrid vehicles means the demand for palladium is growing. He's also seeing the Trump tariffs and the geopolitics has been to the benefit of Chalice and Gonneville. So he's got the wind back in his sails. He's up and away and he takes us through why this week's announcement was so important, why the market loved it and put the share price through the roof when it was announced, and what he's going to do next. Alex, what a cracking week. Your share price is up by about the same percentage as Mineral Resources' share price is down, sort of circa 25%. How does that make you feel?
Hi Paul. Yeah, no, good, good feeling, good start of the week. Yeah, it's been a pretty tough 18 months for the company and our shareholders, so great to really have some good news to share and great to see the way the market was, you know, it was just very easily digested and the response was rapid. So yeah, no, good, good week.
Arguably you've been the star of the week. You're probably one of about the only bit of good news investors in the space had this week. There's been blood on the street. BHP and Rio rocked the market with some underwhelming results, big losses in the likes of IGO, Pilbara Minerals on the back of the lithium price. We all know about the woes at Mineral Resources and Chris Ellison, etc. Stock down about 30%. Chalice shares are up 20, 25% on the back of this announcement. Why has the market loved the release so much?
Yeah, maybe we've been a little bit ahead of the trend, but yeah, we certainly felt the downdraft of the drop in nickel and palladium prices over the last couple of years. But really, I guess one of our key challenges with our project, you know, it's a big beast of a resource. You know, it's a nickel-copper-PGE sulfide system. And for those who understand these systems, you know, they are very unique. Each one of them has different characteristics, different minerals, so you can't really apply a cookie-cutter or sort of top-down approach to the metallurgy and the flow sheet. So one of our big challenges has been the nickel side of the flow sheet. We just weren't ever able to generate a salable product, you know, using simple conventional flotation techniques. And as we said at the beginning of this week, yeah, we've now resolved that issue. We can produce salable nickel concentrate across the full grade spectrum, which is a big, big deal because there was a big chunk of the resource that was problematic from that perspective. And now we've really gone and solved that. So we can produce salable copper, nickel concentrates, and then we'll get additional palladium and gold recovery out of the flotation tails by using just standard gold industry techniques. So we've got a flow sheet now that is, you know, it's a reset of the project. It's a dramatic change from where we were forced to go over the last two and a half years, which was down the sort of the hydromet route to really upgrade that nickel to a salable product. So nice to really simplify things and really, you know, reset the project with a much more simple, cheaper, more efficient, more easily, you know, executed flow sheet.
Speaking of simplifying things, I mean, metallurgy is about as complicated as it gets in the mining, the resources game, isn't it? And let's just take people through what it is that you've announced in terms of the product that you will now produce, or the products you'll produce, versus what you were going to do when you put the scoping study out some time ago. Now, the scoping study, it's fair to say, sort of rocked the market in the sense that the costs of building the project and operating the project were deemed to be high. And of course, that contrasted at the time with falling prices for the product. So you took a double whammy. Since then, you've been head down at it. You've gone down a completely different path. You've said, okay, let's abandon the hydro extraction process, which is a complicated process, isn't it? It's expensive in terms of building the plant. It adds to your operating cost once it's up and running. You've actually gone this time down a very different route and it's far simpler, more conventional. You might say it's pretty simple in terms of metallurgy. What you're doing now is, as you just said, is what's being done across the gold industry and other things. And in essence, you'll end up with two concentrates, one which holds one group of metals out of Gonneville and one which holds another. Is that essentially where you're going to land?
Yeah, exactly right. It's all back to simple, back to basics. And when you're trying to get a greenfield project going, a very large greenfield project going in this sort of metals price environment, obviously that's driven us to try to keep it simple, as lean and as low cost as possible. So we previously couldn't do that because the metallurgy just wasn't allowing us to achieve, you know, salable product from the low grade. And now we've really, yeah, we've cracked it. So we've...
Let's stop there, because they cracked it. A skeptic might say, oh, Alex, this is very convenient. You suddenly found sort of, you know, Willy Wonka's gold path to an economic project here. Why didn't you do this in the first place?
Yeah, look, it's a good question. You know, we've had a team of metallurgists working on this thing now for about three years. So, look, obviously we wish we'd cracked this three years ago, but I think there's a few things to consider here. The first is when we started, we were sort of looking at the high-grade, you know, material that we found early days when we made the discovery, you know, four or so years ago. We said, you know, let's get a flow sheet that works for that. And then what we did is we found this huge amount of low-grade material surrounding those high-grade loads. So we sort of said, look, that may require a different process. And we did some testing, couldn't really get it to work with just flotation. So we went down at that time the pathway of hydromet. You know, I think the collective view at that time was from everyone involved, including international experts and people from all around the world who were looking at this project, was, you know, that they just didn't think that a 0.15% nickel head grade was ever going to upgrade to an 8% nickel concentrate. They thought, you know, that was pushing the boundaries, pushing the envelope for what flotation can achieve. So we went down the hydromet path, and that was probably 18 months, two years, you know, of...
And that's an approach that's really aimed at the higher grade material. And it was something that you started before you found the big lower grade resource.
That's right. And we were in a different market environment at that time as well. So nickel was at a $25,000 a ton mark. There wasn't this oversupply of Indonesian product in the market. And so there was actually an incentive as well to chase more value, build more processing to get more value. And obviously subsequent to that, you know, so those two elements have changed on us. The market for nickel is now oversupplied. So we need to, you know, really strip back a lot of those ambitions around capturing more value. And really we put a lot of focus on, you know, go back to that work of two years ago and can we find another pathway to generate salable product? And we had, you know, lots of people involved, but, you know, credit to those people, the tight-knit group of metallurgists working for us as well as our labs. You know, we've had two separate labs, you know, working on this problem now for the last sort of 12, 18 months. And so, you know, they persisted and they just kept experimenting and lots of little small changes in flotation have resulted in the step change. So you can't sort of isolate one thing, one breakthrough. It is a newer set of reagents, a different way to run flotation in terms of agitation conditions and just determination and lots of iterations, lots of experiments.
So the bottom line of that is by applying all these changes that you've established that you can now extract low-grade nickel using a conventional flotation process.
That's exactly right. And then we generate those two concentrates that are just shipped to smelters and we don't need to do any more processing beyond simple flotation.
It really turns on the success with extracting low-grade nickel using a conventional flotation process. It's really about the nickel, isn't it? It's not about all the other metals. Copper has never been a problem, palladium never been a problem. What's really been the problem has been the nickel side. So that's an important point, isn't it? It's not about the whole basket of metals that come out of Gonneville. It's all been about solving this problem called low-grade nickel. How do we get that out at a low cost? Flotation would be the secret if indeed it works. And you say that's the bit you've now established you can use.
That's right. And it was also understanding what form the nickel's in, like what are the minerals. One of the unique things about Gonneville that differentiates it from other low-grade nickel projects around, like Mount Keith, Yakabindie, is we have most of that nickel, even though there's a low quantity of it, most of it is in sulfide form. So that means it's floatable nickel. So there was a bias, I think, initially that because it was low grade, we would always have a portion of, a large portion of it that was going to be unrecoverable or locked and therefore not, you know, floatable. And so we did more and more investigations. We did lots of investigations into the mineralogy, really like going to every corner of the deposit, trying to understand what is it about our nickel that makes it sort of, you know, what do we need to throw at it to crack the code? And really realizing that, you know, circa 80% of it is in sulfide form, you know, well-liberated sulfides that could recover to flotation, that kept us motivated to keep going with the flotation, keep trying different conditions, different reagents. And yeah, like I said, very happy to, you know, and credit to those guys involved who have gone and cracked it for us.
Now coming back to why this is so important and why the market's got so hot and sweaty about this week, put aside the metallurgy, as fascinating as it is for the chemists among us, the issue here is that it has big economic implications, cost implications.
Yes, yeah, that's exactly right.
So what can you tell us about that? You say this is really important. The market obviously agrees that it's important. How much is it going to save you?
Yeah, well, I think you've gone from a very complex flow sheet with lots of pieces, lots of capital required, lots of operating cost down to something that's a fraction of the size, therefore lower capex, lower opex. So, you know, whilst we don't get as good of recoveries because we just won't have as much processing on the site, we'll take a small decrease in overall metal recoveries, so 5, 10%. We've cut operating costs and capital cost by much more than that loss. So the overall impact to the bottom line, the overall impact to the margin, although what we'll make per ton is expected to be significantly higher than where we were two years ago.
So there are big capital cost and operating cost benefits to be had here.
That's right, that's right. So it was order of magnitude, was about $500 million Australian dollars worth of capital that was just to build that hydrometallurgical plant, you know, to process the...
What's that as a percentage? What's the denominator in that equation?
So overall capex was about 2.3 billion. So you're talking sort of 20, you know, ballpark, you know, was 20%.
Highly material amount of money.
Exactly. So, you know, you cut that sort of capex, you know, coming out is meaningful. It also reduces the hurdle for us to get into business. You know, the initial capital cost, you know, that has always been the challenge for this deal.
As your funding requirement, presumably.
Absolutely, because, you know, we've always known that once we're in business, once it's built, it will sit in such a competitive part of the cost curve, it'll always be able to produce and be profitable through the cycle.
And not many assets can do that, right?
It is. That's what makes this thing so unique is that it's not only just this different, unique, polymetallic, large, you know, ultra-large resource, but it is going to be an open-cut mining operation, very low cost. So that means it'll be profitable through the cycle.
