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Strategic Minerals eyeing acquisition opportunities

Published: 07:52 01 May 2015 BST

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More asset purchases could be on the way at Strategic Minerals (LON:SML) following the recent acquisition of the Tatu coal project.

In its first quarter update, the firm revealed it had US$859,000 cash at the end of March and with a decent cash flow, the company is in a position to make more acquisitions such as the majority interest in the Tatu coal project in New Zealand.

"The board and management have identified some good acquisition opportunities during a difficult time for global mineral markets," revealed managing director, John Peters.  

"Unlike a number of junior resource companies, Strategic Minerals has both an ongoing cash flow stream and the expertise to thoroughly review potential projects on both their technical merits and economic viability. 

"The directors and management believe that these strengths, and the recent contract to purchase 100% of the Tatu coal project, have rekindled interest in the company and we eagerly anticipate maintaining this heightened level of momentum by completing the Tatu coal acquisition and adding similar transactions to the company's portfolio, to the benefit of all shareholders."

At its Cobre magnetite tailings operation in New Mexico, the company shifted 4,707 tonnes in the quarter, raising US$313,000, down from 7,203 tonnes sold for US$485,000 a year earlier, when there was an unusually large spike in domestic demand.

Operations at the mine have been successfully streamlined to reduce costs, while still ensuring adequate service to customers and safe operating conditions, the company said.

The group's overheads have now been reduced to less than US$1 million (excluding project review costs) on an annualised basis, which represents a reduction of 62% compared to the annualised overheads reported in the June 2014 half year results.

During the quarter, the company entered a memorandum of understanding (MoU) with the owners of the Wanbao Coal Mine.  

The directors are aware that investing within China can be highly risky if not approached in a manner befitting the Chinese culture, and the MoU gives Strategic Minerals six months to assess the underlying resource, its market logistics and to thereafter evolve a mutually agreeable acquisition of up to 49% of the mine.

Unlike the Tatu coal project in New Zealand, the scale of the Wanbao project is much larger and development of it is likely to involve the company working in partnership with others. 

The company laid out its list of priorities for the next six months, which are: 

Tatu coal project - complete the acquisition; complete JORC resource assessment; undertake a feasibility study; arrange funding for construction and operations of the mine

Cobre - increase profitability through continued cost reductions and increased domestic sales

Corporate - secure a second expansion project.

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