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Strategic Minerals Plc: THE INVESTMENT CASE

Market warms to Strategic Minerals' diversification

Strategic Minerals has a diversity of assets, including the Cobre magnetite operation in New Mexico and the Redmoor tin and tungsten project in Cornwall
Nickel
INVESTMENT OVERVIEW: SML The Big Picture
Magnetite in New Mexico; nickel sulphide in Australia; tin and tungsten in Cornwall

It is good to have more than one string to one’s bow, and Strategic Minerals PLC (LON:SML) has several.

During the first half of the year, the company diversified from iron ore into nickel, rare earths, precious metals, tin and tungsten.

It did acquire 50% of Central Australian Rare Earths (CARE) but has now taken full control. CARE is an explorer prospecting for nickel sulphide, rare earths and gold, and SML also has a stake in the Redmoor tin and tungsten project in Cornwall.

Addition of major new customer makes big difference at the Cobre magnetite operation

Its only producing asset at present is the Cobre magnetite operation in New Mexico, which generated sales of US$1.55mln from 25,385 tons of magnetite in 2016.

The addition of a new major client at Cobre means the firm should post a maiden profit when results for 2016 are unveiled.

Shipments to the new client began in mid-August and provided a notable boost to fourth quarter performance

Sales in the three months came in at US$462,000 on the back of 7,686 tonnes produced. That compares to sales of US$250,000 in the same three months of 2015 on the back of  3,684 tonnes generated.

Due to a bulk discount for the customer, average sales prices reduced, but overall net profitability is expected to be maintained at the historical average level of 45% of sales, Strategic said.

In April this year, it agreed a new contract for 400,000 tons of magnetite from the Cobre facility.

Strategic said the new customer had paid a US$10,000 deposit and will lodge a further US$250,000.

This contract should double annual sales from Cobre without affecting the effective net profit margin of between 40% to 45% of revenue, it added.

A tin mine in Cornwall? Now there's a thing ...

Strategic sold 150mln new shares at 0.4p a pop to new and existing investors. The shares ended 2016 at much the same level but this year have started motoring, as things looks to be accelerating at Redmoor.

Redmoor is being developed by Cornwall Resources Limited, Strategic’s joint venture with New Age Exploration Limited. Strategic holds a 50% stake in Redmoor.

Redmoor holds an exploration licence and option over 23 sq km in the Cornish tin-tungsten-copper mining district with rights to explore over the entire area for 15 years and to enter into a 25-year mining lease (renewable for a further 25 years) over any part of the licence area.

A review of historical data has indicated a JORC-compliant mineral resource of 13.3mln tonnes at 0.37% tungsten equivalent, or WO3Eq, which is 0.56% in tin equivalent (SnEq) terms.

Energold Drilling has started the first phase of drilling at Redmore, which is expected to be completed in the third quarter of 2017. A total of 23 holes will be drilled, including 13 in the first phase and 10 in the second phase. Phase 2 is planned to be completed this year.

Men* at work down under

Meanwhile, on the other side of the world … the company has another joint venture, Central Australia Rare Earths Pty (CARE), operating in Australia.

CARE is drilling for gold at its Mount Weld gold and rare earth prospect and for nickel sulphide at its Hanns Camp prospect in Western Australia.

In November, the company agreed a deal to pump A$250,000 into the project but now Srategic has taken full control of CARE, the company that own the Hanns Camp prospect in Western Australia, as the tenements need extra funding to explore fully -  something it can provide from its booming Cobre tailings business in New Mexico.

"Under existing arrangements, SML was due to move to a 75% ownership of CARE.  However, it has become clear that to fully explore the resource potential indicated in CARE's tenements, larger amounts of funding would be required," chief executive John Peters has said.

“While the profitability of operations at our Cobre plant in New Mexico, USA has provided SML the capacity to provide such funding, Rarus may have struggled to source suitable funding in the timeframe SML envisaged for the project.

“Accordingly, SML was not prepared to expand the exploration scope while not in full control of the project's expected timeline.”

Partner Rarus will receive £522,500 worth of shares in SML for its 50% stake in CARE while Andrew Spinks, the geologist associated with Rarus, will continue to work on its various projects..

What the broker says it's all worth...

Broker SP Angel notes the firm is  "comparatively unusual" among its junior mining peers in "having a source of cash-flow from its Cobre magnetite business in New Mexico". It has updated its valuation estimates made in March.

Its Redmoor, Cobre and Hanns Camp assets total £43.42mln on an upside case, it estimates.

On a a base case estimate, the figure is £29.37mln.

* and women

--adds broker comment and CARE update-

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