East Star Resources
Verkhuba alone.
Good Morning Team.
When you build a copper mine, it’s often a good idea to give away a chunk so you can build it with someone else’s money.
This is the structure of what’s happening at Verkhuba, East Star Resources’ flagship copper deposit in East Kazakhstan.
I wanted to briefly set aside the rest of the investment case, as impressive as it is, so focus on this one asset alone.
A Chinese engineering giant called Xinhai — which has built, designed or serviced over 2,500 mines across more than 100 countries — is going to fund the entire journey from resource definition drilling through to mine commissioning.
An estimated $65 million all-in.
East Star contributes nothing further and ends up with 30% of a producing copper mine.
That’s the deal.
And last week, it stopped being a deal on paper and started being a deal in motion.
What just happened
On 24 June, East Star announced a series of milestones that mark its transition from transaction to execution.
Verkhuba Limited has been incorporated at the Astana International Financial Centre as the joint venture vehicle.
Xinhai has transferred an initial A$500,000 into the JV company to kick off the work programme. The licence covering the Verkhuba deposit is now being formally transferred into the JV entity.
A drilling contract has been signed.
The rigs have been mobilised to site.
Approximately 5,000 metres of diamond drilling is happening.
The company also announced that site preparation works are underway — drill pad construction, expanded core logging facilities, and designs submitted for an on-site assay lab.
Discussions on land acquisition and long-term infrastructure requirements have begun.
This is no longer a term sheet.
It’s a mine being built.
The asset
The Verkhuba deposit sits in the Rudny Altai Volcanogenic Massive Sulphide belt in East Kazakhstan — one of the great mineral corridors on earth, home to world-scale mines operated by Glencore and Kaz Minerals for decades.
The current JORC Inferred Resource is 20.3 million tonnes at 1.16% copper, 1.54% zinc and 0.27% lead.
That’s over 235,000 tonnes of contained copper at JORC standard — a serious deposit in any jurisdiction, let alone one with this infrastructure.
Within 70 kilometres of the Verkhuba site, there’s a Kaz Minerals concentrator with 800,000 tonnes per annum of spare processing capacity, a Glencore concentrator and smelter at Ridder, plus roads, rail, power, water and an international airport.
The pre-existing infrastructure is the reason a $65 million development budget for a mine of this scale is credible rather than optimistic.
Historical metallurgical testwork on the deposit produced copper recoveries above 90%. That figure is from work done in the 1970s.
Modern processing should comfortably match it.
The deal structure
The Xinhai earn-in follows five defined stages:
$1.5 million for an initial 15% stake covering resource definition drilling
Feasibility study work for a further 20%
Detailed engineering design for an additional 10%
Equipment transfer to reach 51%
Project commissioning to complete the 70%.
East Star is fully carried at every stage.
No capital calls.
No dilution to fund development.
No debt on the company’s balance sheet.
No off-take agreements handed to trading houses at a discount.
No fuckery.
If CapEx blows out, Xinhai wears it.
If construction takes longer than planned, East Star doesn’t pay a day rate.
The only binary risk East Star carries is whether the mine gets built at all — and on that question, you’re betting against a firm that currently has a processing plant under construction elsewhere in Kazakhstan with a development timeline of under 12 months.
Profit prophet
I’ll let Alex Walker do this one. When I pressed him on the numbers in my recent interview, he didn’t dodge it.
The JVA specifies a plant capacity of one million tonnes per annum. Historical copper recoveries at Verkhuba came in above 90%.
Walker’s own calculation:
‘1.1% times a million tonnes times 90% recovery — it’s close to 40 million bucks a year of revenue for our 30%.’
For balance, he did add all sorts of caveats to this statement.
But that’s the CEO of the company pencilling in $40 million a year in attributable revenue.
And that’s at the current copper price of $13,000-$14,000 a tonne — not an unreasonable assumption.
‘It’s firmly my view that copper will be over $14,000 by then,’ he said, ‘so I’m super happy using that number.’
Then there’s the margin question.
Walker on Kazakhstan’s cost environment:
‘Kazakhstan’s the cheapest place in the world to dig a hole. There’s a reason why the lowest cost C1 copper mines in the world are in Kazakhstan — power, labour, diesel is cheaper than anywhere else.’
His margin estimate?
‘To say that our margins might be 50% or more — I don’t know. Again, it’s a guess, but it’s not unreasonable.’
And then he got to the most interesting part of the maths — the earnings line itself.
Because the usual acronyms don’t quite apply here.
There’s no depreciation or amortisation on East Star’s books for an asset they didn’t build.
There’s no interest because there’s no debt. Walker put it simply:
EBITDA collapses, in this case, almost entirely into earnings before tax.
We’re creating new acronyms here.
Set $40 million in annual attributable revenue, at 50%+ margins, with no debt service and no depreciation, against East Star’s current market capitalisation of approximately £20 million.
Indeed.
Timeline
Two years to first production is the measured base case.
The logic runs as follows: this year’s 5,000-metre drilling programme supports resource conversion and feeds the feasibility study.
If the mining licence application is submitted before year-end — which is the stated intention — the fastest Kazakhstan has processed such an application is six months.
Add 12 months for construction and commissioning, and you’re at the two year mark.
Xinhai believes it can go faster. They would know.
But the point is that two years is the conservative estimate from people who know what they’re doing, in a jurisdiction that actively wants the mine built and the taxes flowing.
Permitting risk is the main unknown.
But the Kazakhstani government doesn’t have the same incentive to delay that western regulators do — production means revenue, and revenue is what they want.
Walker has described the dynamic directly: they want to get out of your way.
The bottom line
In this environment, a copper mine being funded and built by an experienced contractor, in a low-cost jurisdiction, with a two-year timeline to production, held at 30% with no capital contribution, where the maths is so simple a child could do it…
is a winner.
You just need to emulate Take That.
And have a little…patience.
Thanks, Charles. This article gets straight to the point. As you mentioned, EST also has projects at an earlier stage, which keep the company busy and are by no means worthless. Perhaps they will deserve a look by you in due course.
and when they start mining that will be our "Greatest Day"