The Offering

Company Overview

Chalkos Metals Limited (ASX: CKM) is a Western Australia based resources exploration company with focus on copper and base metals at its wholly owned Mount Isa Project located adjacent to Glencore’s Mount Isa Mine and 10km from Mount Isa, Queensland. The Company’s primary business activity is to explore for and develop an economic copper or base metals deposit within its Mount Isa Project.

Corporate Structure of the company

Source: IPO Prospectus

Key Highlights

• Purpose of the Offer: The primary objective of the offer is to undertake a 7,000m drilling program to test the 10 remaining priority targets at the 7 known copper prospects (Dali, Goya, Frida, Eldorado, Bambino, Turpentine and Federol West) on the Mount Isa Project tenements. Further, the company is seeking to undertake geophysical surveys and field exploration works on the tenements.

• Primary offering: The Company intends to issue a minimum of 30,000,000 Shares and a maximum of 40,000,000 Shares at a price of AU$ 0.20 per Share to raise a minimum of AU$ 6,000,000 and a maximum of AU$ 8,000,000. (Before costs).

• Use of Proceeds: The company intends to use proceeds from the offering for the following purposes:

Source: IPO Prospectus

• Pre-revenue Stage Company: As the company being in the exploration stage of its operations, it is not yet generating revenue from the sale of commodities.

• Dividend Policy: The company does not intend to declare or pay cash dividends shortly. Its current strategy is to utilize cash available and future earnings to support its business operations and expansions.
  

• Copper Outlook: Recently copper prices has lost most of the gains it made this year as sentiment has soured after a double whammy hit the demand outlook. On the one hand, the overall risk appetite has remained vulnerable as the US Fed started its tightening cycle. In particular, it has turned increasingly hawkish over the last few months after dual supply shocks related to the Russia-Ukraine war and suppressing Covid in China added more fuel to inflation pressures. Further, there is a structural challenge with copper demand. Households’ demand may start to cool, but some demand may be less elastic such as demand from large corporate or government-led projects as they tend to be counter-cyclical. Meanwhile, energy transition-related spending may also be less sensitive to the current tightening cycle. Major economies have not given up their green targets and policies are still in place to drive the growth, for example, renewable energy, particularly in Europe is faced with the major task of replacing Russian oil and gas with other sources.

Financial Highlights (expressed in AU$)

Source: IPO Prospectus

• No Revenue Recognition: Since Chalkos Metals is still in the exploration stage of its activities, it does not yet generate money from commodity sales.
• Expenses Incurred: As can be seen in the table above, most preliminary exploratory activity was done in the year ended 30 June 2020 and the half-year ended 31 December 2021, thus the changes in administrative expenditures and exploration and evaluation expenses throughout the periods reported are predominantly influenced by activity. While administration expenses largely comprise corporate overheads and associated costs incurred relating to preparing for the Company’s IPO.
• Reported Net Loss: As of 31 December 2021, the company reported a net loss of AU$ 377,346 as it incurred only expenses.

Key Management Highlights

Source: IPO Prospectus

Risks Associated (High)

Investment in the IPO of "CKM" is exposed to a variety of risks such as:

• Supplemental Funding Risk: The company will continue to lose money in the near future. While the funds received through the Offer are expected to be adequate to satisfy the Company's stated objectives, the Company will require additional cash to carry out its operations. There is no guarantee that additional funding will be available when it is required, and even if it is, the conditions of the financing may not be favorable to the Company.

• Fluctuations in Commodity prices: Changes in the market price of a variety of commodities, particularly copper and base metals, which have been subject to significant fluctuations in the past, will have an impact on the profitability of the Company's operations and its financial condition in the future, assuming the Company is able to develop and begin production.
  

• Exploration and Development Risk: The business of exploration, project development, and, if the Company begins production at its Projects successfully, mining, all involve substantial risk, including technical, financial, legal, and social issues.
  

• Key Individual Risk: In managing the day-to-day operations of its Projects, the Company heavily relies on the experience and talents of its key personnel. There can be no guarantee that if one or more of these individuals leave the company, there would be no negative consequences for the company.

Conclusion

The Company is currently in the primary stage of mining and currently completing a 7-hole diamond drilling program to test 3 of 13 priority targets identified at the Mount Isa Project. Drilling is expected to be completed by Q3 CY2022, with initial assay results anticipated to be available from Q4 CY2022, post the Company’s IPO.

The Long-term prospect for copper (Red Metal) looks impressive due to its demand for the greening of the economy, particularly clean energy, and electric vehicles. However, in short run the red metal is in a soft patch as the demand outlook has been overshadowed by growing fears of an economic hard landing.

Further, investment in CKM’s IPO is exposed to variety of risks highlighted in the risk section, which may potentially influence the operating and financial performance of the company in the future and could also impact on the value of an investment in the securities of the company.

Therefore, based on the above rationales, we have assigned the IPO of Chalkos Metals Limited, with a “Neutral” rating. This IPO is only suitable for investors with a high-risk appetite given the associated risks and the current market scenario [basis further evaluation].

*Please note that an IPO can be postponed or put on Hold at the discretion of the company or regulatory authority.

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