Heavy Minerals (ASX: HVY) shares are up 95% today. HVY shares are up on the announcement that the mineral resource at Port Gregory is higher than earlier thought. That's nice, that's good news, of course it is. But it's perhaps not 95% up good news. We have a feeling that might be an overabundance of excitement rather than a measured response to the news. We'd not say we are certain enough of this to recommend trying to short the stock - we would very rarely recommend a short at all - but we'd, perhaps gently, suggest that trying to chase HVY higher might not be the most wealth enhancing idea ever.
The news itself is indeed good: “Completed Mineral Resource estimate includes 5.9 Mt of contained garnet, representing approximately 5 years of current global demand
5.4 Mt of the contained Total Heavy Mineral (THM) is within the Measured and Indicated JORC category”
A little unpicking of this. A “resource” is something that we have not wholly proven as yet. Yes, we know it's there but we've not jumped through all the hoops to where it is a “reserve”. With mineral sands like this there's not much doubt about the move from resource to reserve but we're still not at the stage where a bank will finance with debt - one example of the important differences. It's necessary to do the Definitive Feasibility Study, the DFS, which is what moves from resource to reserve.
Heavy Minerals share price from ASX
Garnet here doesn't mean the gemstone - although it's the same mineral of course. Rather, this is an industrial mineral, used for sandblasting and watercutting. Lovely stuff, big market, but it is still a basic industrial material. It's also not rare, this area of Australia is a major source and so on. We are not talking of something where there's great rarity value. We're talking delivered in the hundreds of dollars per tonne range - it's the efficiency with which it is mined and transported that really generates the return.
Well, OK, nothing wrong with any of that, people do make good livings producing the base industrial materials. But it's worth noting that the announcement here is not that they've just found this deposit. It's that the resource estimate is up by 23%. So a 95% increase in the market capitalisation seems a bit much. For the increase in the resource doesn't then move the project over some viability huddle - the deposit was already known to be large enough to be worth mining. So we've not gone from “don't mine” to “do mine” here. It's just that there's more to mine.
Now it's true that Heavy Minerals is pretty small - $8 million market capitalisation. But we'd still suggest that a near 100% rise on this announcement is overdoing it a bit.