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Cassini Resources Ltd soars 389%: Should you get on board?

Cassini Resources Ltd (ASX: CZI), a tiny resources explorer has seen its shares explode today, rising 389% to 22 cents, after the company acquired BHP Billiton Limited’s (ASX: BHP) West Mustgrave project.

Cassini will pay just $250,000 upfront, as well as a 2% net smelter royalty, plus a $10 million milestone payment on the one year anniversary of production.

In return, Cassini gets 100% of the West Musgrave project, which includes the Nebo-Babel nickel and copper deposits and the Succoth copper prospect. Nebo-Babel was discovered by WMC in 2000, and is estimated to contain 1.47 million tonnes of nickel and 1.56 million tonnes of copper.

Nebo-Babel geology is similar to several large nickel-copper mines around the world, and Cassini says the deposit is similar to BHP’s Mt Keith deposit, which was discovered 20 years ago. The company says the deposits are large, and both are very close to the surface, indicating production costs should be fairly low, and cash flows should be generated fairly early in the mine’s life.

The company intends to take a different approach to BHP, focusing on a higher grade, smaller operation.

It’s a remarkable coup for Cassini, with low up-front costs. The company has compared it to the acquisitions of the Forrestania Nickel Project by Western Areas Ltd (ASX: WSA) from Outukumpu, the Long Victor Mine Complex by Independence Group NL (ASX: IGO) from WMC and Panoramic Resources Limited (ASX: PAN) acquisition of the Lanfranchi Project from WMC.  All three went on to become billion dollar companies.

Foolish takeaway

It’s still early days for Cassini. The company’s next steps include further drilling at Nebo-Babel and defining a JORC compliant Mineral Resource at Succoth. From there, the company will still need to spend millions of dollars to finally get to production. Shareholders buying in now can likely expect a number of capital raisings along the way, given the company had less than $500,000 in cash in the bank at the end of December 2013.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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