Managing director Peter Blight told Proactive Investors today Taylor Collison has fully underwritten the capital raising.

“We’ve got a full underwriting agreement, so effectively we will be raising all of the funds and that’ll launch us into this year with our drilling program at the Heemskirk Tin Project,” he said. 

Stellar recently moved to 100% ownership of the Heemskirk Tin Project with the issue of 43.5 million shares to Gippsland (ASX: GIP) to acquire its minority interest in the project.

The agreement clearly stakes Stellar as the explorer and developer of the Heemskirk Project and a potential future tin producer, and will make it easier for the company to attract the capital necessary to develop the project.


Cornerstone Backer

Resource Capital Funds has become a cornerstone investor in Stellar through its participation in the share placement.

The mining-focused private equity firm is currently investing the US$1.02 billion raised in its fifth fund, Resource Capital Fund V LP, to help its investee companies build strong, successful and sustainable mining businesses.


Heemskirk Plans

Stellar is in the process of securing a drilling contractor to begin work at the Heemskirk Project in early March.

"It will be quite an extensive drilling program through 2012 with the basic objective of adding to the resource base," Blight said.

Drilling will initially focus on expanding the Severn deposit with a follow‐up program to the highlight intersection of 6 metres at 1.1% tin reported in mid-November.

Stellar will then drill test potential extensions of Severn along strike and a number of discrete magnetic anomalies on the retention licence, as well as undertake infill drilling to improve resource certainty.

“We’ve got opportunities around that deposit and also around the other two deposits as well for drilling to add some additional tonnes, but also to increase the confidence level in the known deposits,” Blight said.

Metallurgical test work, engineering studies and environmental monitoring will also be advanced during the program.

Stellar will also use some of the funds raised to drill test its high priority exploration targets and, in particular, the St Dizier tin mineralisation.

The company is eyeing the completion of a Bankable Feasibility Study in the second half of 2013.


Highest Grade Undeveloped Resource

The Heemskirk Tin Project comprises the Queen Hill, Severn and Montana deposits which are located immediately north-west of Zeehan on the west coast of Tasmania.

The project is strategically located near necessary infrastructure such as rail and roads connecting to the Burnie Port, as well as having access to water and power.

Stellar has estimated that the three deposits comprise an Inferred Resource of 4.4 million tonnes at 1.1% tin making Heemskirk the highest grade undeveloped tin resource in Australia.

A Scoping Study showed potential for economic development with a 3.5 year payback on $108 million pre-production capital and a competitive cash operating cost of US$12,780 per tonne of tin.

Stellar will issue 43,528,743 new Stellar shares to Gippsland to settle the deal. Stellar shares were last trading at A$0.092, valuing the share issue at a little over $4 million.

Stellar chairman Phil Harman said, “This agreement is an exciting development for Stellar. It clearly stamps the future direction of the company as the explorer and developer of a world class tin resource.

“Given the positive outlook for the future of the global tin price, it places Stellar in a position to deliver great value to all of its shareholders.”

The Heemskirk Tin Project comprises the Queen Hill, Severn and Montana deposits which are located immediately north-west of Zeehan on the west coast of Tasmania.

The project is strategically located near necessary infrastructure such as rail and roads connecting to the Burnie Port, as well as having access to water and power.

Stellar has estimated that the three deposits comprise an Inferred Resource of 4.4 million tonnes at 1.1% tin making Heemskirk the highest grade undeveloped tin resource in Australia.

A Scoping Study showed potential for economic development with a 3.5 year payback on $108 million pre-production capital and a competitive cash operating cost of US$12,780 per tonne of tin.

Importantly, from recent drilling around the known deposits and comparison with similar deposits elsewhere in the world, Stellar believes there is considerable potential to add to the overall resource with further comprehensive exploration.


Sale Agreement

Gippsland will sell its 40% free-carried interest in the Heemskirk Tin joint venture to Stellar’s wholly owned subsidiary Columbus Metals.

This interest was to reduce to 30% upon completion of a Bankable Feasibility Study and decision to mine by Stellar, and reimbursement by Gippsland to Stellar of Gippsland’s proportion of expenditure dating back to the 1970s.

In addition to being issued the Stellar shares, Gippsland will retain a net smelter return royalty over any future tin production from the Heemskirk project.

The royalty will be triggered when the tin price is $25,000, at a rate of 1%. The royalty will then rise linearly to a maximum rate of 2% at a tin price of $30,000 and above.

Stellar acquired an interest, originally owned by Aberfoyle, in the Heemskirk Project from Western Metals in early 2008.

The joint venture agreement between Stellar and Gippsland dates back to the 1970s when Aberfoyle was the managing partner.

Both Gippsland and Stellar believe this new agreement paves the way for Stellar to complete the exploration work required to further the project.

For Stellar, the agreement clearly stakes the company as the explorer and developer of the Heemskirk tin project and a potential future tin producer and will make it easier for Stellar to attract the capital necessary to develop the project.

Gippsland chairman Ian Gandel said the Heemskirk Tin Project has been disadvantaged for too long by the joint venture agreement signed in 1972.

“By committing to this deal, the parties will ensure that the project is given the best possible chance of becoming a mine and this can only benefit shareholders of both companies,” he said.

“Gippsland shareholders will benefit not only from their continued exposure to the Heemskirk asset and a royalty from that project, but also from exposure to Stellar’s other exploration projects.”

Peter Blight, Stellar's CEO said “significant potential exists to upgrade the size of the Severn deposit by drilling deeper. The results from these latest holes have defined the northeastern margin at depth and given us a clearer understanding of controls on the mineralisation and where to focus our future drilling to significantly upgrade the Heemskirk resource.”

The purpose of the drill hole was to test the limit of the northeast margin of the Severn deposit at depth. ZS107 intersected the ZS84 tin bearing pyrrhotite/pyrite zone at 547 metres downhole over a thickness of 20 metres.

The company said tenor of tin mineralisation in ZS107 was lower than that encountered in ZS84 suggesting that the deep, northeast margin of the tin mineralisation has been intersected.

Hole ZS107A tested the target zone 20 metres above ZS107 and intersected a more intense pyrrhotite/pyrite zone with stronger chlorite alteration and assay results are pending in about three weeks.

Geological interpretation indicates that higher grades are most likely to extend at depth in a southwesterly direction.

The Inferred Resource at Heemskirk remains unchanged, however the potential has been upgraded. In March a JORC Indicated and Inferred Resource of 4.4 million tonnes at 1.1% tin with 49,000 tonnes of contained tin was reported for the Queen Hill, Montana and Severn deposits within the Heemskirk project.

The company's next stage of drilling will test below Severn, targeting the vertical extension below the highest grade mineralisation where there is potential to double the size of Severn. Four holes are planned to test this priority target in the next stage of drilling.

The Heemskirk Tin Project is located near Zeehan on Tasmania’s West Coast in an area well serviced by power, water, transport, mining and other infrastructure.

Stellar holds a 60% interest in the project with joint venture partner Gippsland Limited (ASX: GIP) and can increase its holding to 70% by completing a Feasibility Study.

The latest discoveries come hot on the heels of a Scoping Study released in July which indicated strong profit margins based on tin cash costs of US$12,780 per tonne.

A projected 21% internal rate of return and 3.5 year payback at a long-term tin price of US$25,000/tonne (US$22,500/t net of treatment charges) will see Stellar immediately move to the Pre-Feasibility study to develop Heemskirk.

An annual tin production of 3,900 tonnes would rank the project second only to Metals X's (ASX: MLX) Renison Bell mine in Australia.

Stellar remains on target for a Pre-Feasibility Study at Heemskirk by mid-2012, with a Bankable Feasibility study by the end of 2012 (which would allow the company to move to 70%), with production in 2014.

The Pirie Basin Project in the Eastern Eyre Peninsula of South Australia, is located within EL 3978. Renaissance has a right to earn a 75% interest in EL 3978 pursuant to an agreement with a subsidiary of Stellar Resources.

The prospect is an area of strong gravity gradient adjacent to an anomalous magnetic zone. Elevated gold, uranium and rare earth elements associated with the copper intersection suggest possible IOCGU or Hillside-style mineralisation.

Renaissance  plans follow-up work to include more comprehensive basement drilling of the copper intersection, as well as more detailed geophysical surveying and drilling in the wider prospect area.

In November 2010 Renaissance agreed to sole fund $3.5 million of expenditure over five and a half years to earn a 75% interest in the tenement.

During the initial 18 months, Renaissance is required to spend a minimum of $500,000 on geophysics and drilling before it can elect to earn an interest.

On election, Renaissance will sole fund $3 million of expenditure over four years to earn a 75% interest in EL 3978. The minimum expenditure commitment in each of the four years is $500,000.

Upon Ministerial consent being granted to the joint venture agreement, Renaissance will issue Stellar 750,000 ordinary shares and 750,000 options in Renaissance.

On election to commence the earn‐in, Renaissance will issue Stellar with a further 750,000 ordinary shares and 750,000 options.

The latest highlights from Stormsdown are; 1.0 metre at 1.28% tin from 68 metres and 1.0 metre at 0.73% tin from 94 metres, while at Montana the best intersection was 2.0 metres at 1.57% tin from 150.5 metres.

Interestingly what is adding some spice to the project are intersections of associated high grade silver, lead and zinc mineralization - which Stellar said have the potential to enhance the project.

At Stormsdown the multi-commodity highlight was 6 metres at 1.3% lead, 3.6% zinc and 40g/t silver, including the higher grade 1 metre at 4.9% lead, 3.6% zinc and 123g/t silver.

Montana returned 4 metres at 2.8% lead, 1.7% zinc and 126g/t silver.

What essentially is so important for Stellar are the latest discoveries come hot on the heels of a Scoping Study released earlier in the month which indicated strong profit margins based on tin cash costs of US$12,780 per tonne.

A projected 21% internal rate of return and 3.5 year payback at a long-term tin price of US$25,000/tonne (US$22,500/t net of treatment charges) will see Stellar immediately move to the Pre-Feasibility study to develop Heemskirk.

An annual tin production of 3,900 tonnes would rank the project second only to Metals X's (ASX: MLX) Renison Bell mine in Australia.

Stellar remains on target for a Pre-Feasibility Study at Heemskirk by mid-2012, with a Bankable Feasibility study by the end of 2012 (which would allow the company to move to 70%), with production in 2014.

Comment

The life of mine gross revenue of $673 million (100% basis) net of smelting and refining charges, or $88.5 million per annum, is significantly higher than Stellar Resource's market valuation of circa $15.2 million, and indicates there is significant long term upside in Stellar's market value and rating.  It is also significantly undervalued in terms of its peers.

The resource grade of 1.1% tin is the highest grade of any Australian listed tin company other than Metals X's Renison Bell mine, under-pinning the project's competitive cost structure.  The estimated cash cost places the project at the low end of the range for hard‐rock underground operations.

Below is an extract of the broker report.

Issued Capital: 108.82m ords, 6.88m opts
Market Capitalisation (m, diluted): $19.09
Enterprise Value (m, diluted): ~$15.4
Share Price (21/3/2011): $0.165
52 week low: $0.043
52 week high: $0.24
Cash (m) as at 31/12/10: $3.70

Key Points

The Heemskirk Tin Project appears to “tick all the boxes”, and we consider it to be considerably undervalued.

Recently released maiden JORC compliant resource for the Heemskirk Tin Project of 49,000t of contained tin.

Resource grade of 1.1% tin is the highest grade of any Australian listed tin company other than Metals-X, which is producing from the nearby Renison Bell mine.

This follows on from positive results from initial tin metallurgy at the Queen Hill prospect which indicates that it is theoretically possible to produce a 50% tin concentrate at a recovery of 70%, with the tin mineralogy being cassiterite.

This would produce a potentially marketable concentrate, similar to that produced by Metals-X.

Results of recent drilling also confirm the quality of the project, with wide, high grade intersections.

We see significant resource upside at Heemskirk, and the Company has recently commenced a drilling programme to test for shallow strike extensions, down
dip extensions and additional deposits.

Stellar has a number of additional tin prospective tenements in Tasmania.

With tin at record high prices, and likely to stay strong Stellar has, or is in the process of joint venturing its mainland projects, including iron ore, uranium and IOCG targets to allow resources to be concentrated on tin.

Our View

On March 7, 2011 Stellar released the maiden JORC-compliant resource for the 60% (earning 70%) owned Heemskirk Tin Project in Tasmania.

The resource, which contains 49,000t of tin at a grade of 1.1% is the highest grade tin exploration/development play listed on the ASX, and contained metal compares favourably with other ASX listed tin companies.

This positive news follows on from results of preliminary tin metallurgical work, which were announced in late 2010.

This preliminary work, carried out on samples collected during the recently completed shallow diamond drilling programme resulted in positive results, and goes a long way to addressing misconceptions regarding the metallurgy.

The Company is now carrying out extensional drilling, with positive results to be used to upgrade and expand the current resource, and to be used in a Scoping Study the Company has recently commenced.

Given the recent results, and the relative undervaluation with respect to peers we recommend Stellar as a SPECULATIVE BUY, with a six month base case target price of $0.31/share. We believe there is upside to this price target.

Gourlays is located 35kms and within trucking distance from Stellar’s Heemskirk Project, where drilling to extend the resource was undertaken earlier in 2010.

Depending on results, the rig will either continue drilling at Gourlays after the first hole or re-locate to the Heemskirk Tin Project.

Eariler in the year, Stellar announced some near surface high grade results from Queen Hill, within the Heemskirk Tin Project which included:

- 21.2 metres grading at 0.82% tin, including 3.0 metres grading at 1.87% tin; and
- 5.0 metres grading at 1.56% tin.

Stellar holds a 60% interest in the Heemskirk Project with joint venture partner Gippsland (ASX: GIP) and can increase its holding to 70% by completing a feasibility study.

Stella said it is not aware of any material information that has not been announced which could explain the sudden investor interest, while re-affirming some of the company's objectives.

Stella then stated:

'Stellar has a diverse range of mineral development projects in three states of Australia.'

'The company has been nominating iron ore, tin and uranium as its lead projects.'

'We have observed market interest in tin firming up of late with investors showing interest in companies holding tin assets.'

'Through its dedicated subsidiary, Columbus Metals Limited, Stellar holds a 60% interest in the substantial Heemskirk Tin Project in Tasmania.'

'We refer you to a string of recent announcements, which include drill results.'

Stella shares opened stronger at $0.20 on Monday 11 October, subsequently easing in intra-day morning trade today to $0.18.