Sirius Resources

When Sirius Resources announced a new nickel discovery in Werstern Australia, people took notice. The share price of this once tiddler rocketed from about four cents a year ago to a high of $5, before falling back to around $3. That is still a rise of almost 100 times in less than 12 months. Yes, people have taken the company very seriously indeed.

Boasting a market capitalisation of around $750m, the question is whether it deserves such lavish attention. It's early days for Sirius, which is still confirming resources but, so far, the results are spectacular.

Nova, as the new discovery has been named, contains rich seams of nickel, copper and cobolt at high grade. Even with today’s lower commodity prices, there is plenty of value per tonne of ore to justify a mining operation. That much has already been assumed. The quibble is in how much value this deposit will produce. If history is any guide, there is a strong chance of repeat formations. The geology resembles ore bodies in Canada that are in operation today, which are certainly mineral rich. An extension of Nova, known as Bollinger, has already been found. The hunt is now on for more discoveries.

Taking the results released to date and those that are likely to be released shortly, however, suggests the market has gotten a little carried away. Using today’s metal price and extrapolating the geometry of the ore body, we estimate Nova to be worth between $2 and $3 per share. That is still a generous, rather remarkable result for a company with a share price below 10 cents just a year ago, but it’s potentially a long way short of today’s price. Sirius has been a genuine success story but a lot of exploration success is now baked into the share price. AVOID.