Company Overview - Sirius Resources NL is an Australia-based mineral exploration company. The Company’s tenement portfolio lies in Western Australia, covering over 8,500 square kilometers, making the Company a gold, nickel and base metal explorer. The Company’s projects are located in gold and nickel districts and in emerging gold, nickel and base metal provinces.  The Company is prospective for komatiite style nickel sulphide deposits, intrusive style nickel deposits, volcanogenic massive sulphide, copper-zinc deposits, lode gold-style deposits and porphyry-style molybdenum-copper-gold deposits. The Company focuses on its 100 percent owned Nova Nickel project situated east of Norseman, where it made a nickel-copper sulphide discovery known as the Nova-Bollinger deposit and Polar Bear project for gold and nickel. The Company is exploring on its 70 percent owned Fraser Range Project situated east of Norseman. The Company focuses on the Earlobe gold prospect in a region containing gold and nickel mines.

Analysis - Sirius Resources N.L. (ASX: SIR) has reported a major progress on its prestigious Nova mine project during the June quarter, wherein the planned developments for the mine are well ahead of the schedule and the Nova DFS mine optimization efforts are ongoing. Meanwhile, Independence Group NL (ASX: IGO) had officially confirmed its acquisition of Sirius Resources for $1.8 billion of cash and stock in the month of May.
 
Nova Nickel Mine Highlights

The group has signed an EPC contract with GR Engineering Services Limited (ASX: GNG) for developing mineral processing and paste fill plant of its prestigious Nova Nickel Project in June. The Contract value is around $114 million with the development estimated to be finished by November 2016. Sirius also entered into a contract worth over $3 million with Future Power, for developing 11kv overhead power line at the Nova Nickel Project. Recently, the group chose Zenith Pacific as the preferred player for developing the 16MW nominal capacity at Nova power station. Zenith would offer 20 Megawatt diesel power station together with a photovoltaic (PV) 6.7 Megawatt solar power station. Sirius along with Solea is expected to deliver a cost effective power solution with zero capital cost and the group estimates around 3 million liters of diesel savings per year. Also Sirius Resources is implementing a renewable green technology at Nova mine site reducing 8,000 tonnes per year of CO2-e which is equal of 1,700 fewer cars on the road. With the availability of the highest efficiency PV panels, the group expects a solar generation of over 12.5 million kilowatts per year.
 
The Boxcut was finished as planned with the decline advance rate delivering better results as compared to the Australian industry average. The total monthly advance reached 374 meters in July, as compared to the DFS estimate of 210 meters per month, indicating favorable ground conditions. Moreover, the development advanced to 675 meters in two months while the entire development reached 799 meters.  The average advance to date of 340 meters per month is far superior as compared to the DFS forecast of 210m/month. The developments progressed 59% quicker as compared to the planned development rate. Meanwhile, the sinking of the first vent rise had also started during the June quarter.


Nova Bollinger (Source: Company Reports)
 
Nova is a long life nickel-copper mine producing Smelter-friendly blending product with low impurities and high Fe:MgO ratio.  The mine plan optimization study showed scope to enhance the mine’s economics in the future. The actual development rates showed 30% better results as compared to the estimated DFS and bank forecasts. The optimization study also showed that enhanced development, mine reorganizing and plant modification. Accordingly, the group estimates better Net Present Value and intends to achieve decrease in operations costs going forward.

The Nova nickel mine village was completed during the June quarter, which now has 492 ensuite rooms with TV, 3G mobile/internet coverage, gym, diner, tavern, sports court, BBQ. The village is developed with slight disturbance to natural bushland to improve environmental ambience. The tailings dam is also completed, which had 1,000 x 600 meter entirely lined impoundment with 13 meter high walls. The tailings dam could hold 5.7 million cubic meter capacity, which also acts as reservoir for ground water from early dewatering of mine area that would be recycled as processing water for plant.

Strong S2 assets to drive SIR shareholders

Although Sirius was acquired by IGO, Sirius is demerging S2 Resources which has non-fraser Range exploration assets with solid gold and nickel prospects in WA’s gold heartland. The assets contains unexplored ground holdings in extremely endowed belts of Finland and Sweden held through 67% owned Sakumpu Exploration Oy (growing to 80%).

 
 
S2 resources organization structure (Source: Company Reports)

The polar bear assets encompasses 548 square meters of tenure covering relatively unexplored projected extensions of major gold corridors in the region and has more than 100 million ounces of gold endowment. Reconnaissance drill intercepts of up to 13m at 23.89g/t gold, within 1.5km long +1g/t gold halo at Nanook prospect were witnessed ten kilometers south of Baloo. Reconnaissance drill intercepts of 12m at 16.9g/t gold, and 32m @2.47g/t gold were witnessed on last hole of southernmost line at Monsoon prospect which is four kilometers south of Baloo. The diamond drilling conducted during the quarter, showed major intercepts, which includes [email protected]/t Au; [email protected]/t Au and 0.6m @ 13.95 g/t Au. The Baloo oxide zone was defined by aircore drilling (like [email protected]/t Au) showing certain diamond confirmation (like [email protected]/t Au).


Polar bear overview (Source: Company Reports)

As per the Sakumpu exploration, S2 resources has 67% interest and intends to increase it to 80%, through funding from Sakumpu’s exploration program by the end of 2016, under certain pre-defined exploration objectives. Sakumpu has 1,306 square kilo meters of reservations in the Central Lapland Greenstone Belt of northern Finland and 271 square kilometers of permits in the Skelleftea-Boliden district of northern Sweden.
There are 1,306 square kilometers of reservations at Central Lapland Greenstone Belt in Finland and solid gold and nickel-copper-Platinum group metal legacy at Agnico-Eagle’s Kittilagold mine and First Quantum’s KevitsaNi-Cu-PGM mine. During the quarter the field office at Sodankyla was developed and over 5,400 line kilometres of airborne magnetic and EM survey was also conducted. The group intends to conduct a 600 line km VTEM survey as well. Skelleftea-Boliden district of northern Sweden has 271 square kilometers of permits.


Finland overview (Source: Company Reports)

Corporate Highlights

SIR incurred a total expenditure of $53.6 million in the June quarter wherein $41.4 million was incurred from the Nova nickel mine development costs while $7.3 million was spent on explorations. The group finished the first draw down under the Nova project debt facility of $57 million. Meanwhile, Sirius has a conservative balance sheet, with $213.6 million of cash by the end of the June quarter. Sirius got $1.6 million from the interest income while $4.7 million was paid for project debt borrowing costs

Sirius expects to incur over $103.2 million expenses for the next quarter, with $96.1 million of funds dedicated for developing the Nova mine project. However, the company is cutting the down exploration costs to $3.2 million as compared to the June quarter. As of June 2015, Sirius had 412.2 million fully paid ordinary shares on issue and 17.75 million of outstanding unlisted options.

 
Outlook

The shares of Sirius Resources (ASX: SIR) delivered a year to date return of over 12.9% and surged around 25.2% in the month of May on the news of Independence group’s $1.8 billion Sirius acquisition announcement. However, the stock has corrected nearly 23.5% since June 1^st (till August 7th), partly impacted by the lower than expected June quarter results and decrease in full year guidance by IGO.


Sirius Resources Daily Chart (Source - Thomson Reuters)

On the other hand, we believe that S2 resource’s Finland and Sweden projects are among the major exploration frontiers in these regions. Moreover, there are no competitive exploration activities around these mines, due to which management is focusing more on these projects. Management also reported that S2 Resources would be exploring further acquisition exploration activities. Meanwhile, SIR is also well funded to conduct its exploration activities in the future.
Based on the foregoing, we reiterate our “BUY” recommendation on Sirius at the current price levels of  $2.72

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