--- ADDS MANAGEMENT COMMENT---
Strategic Minerals (LON:SML, USOTC: SMCDY) has moved away from bulks like iron and coal, securing an option to acquire up to 50% of an Australian firm with nickel and rare earth exploration potential.
The firm has the right to acquire up to 50% of Central Australian Rare Earths (CARE) for A$380,000, or around £190,000, with an initial subscription of 25.5%. It can buy a further 24.5% with a second subscription over 12 months, it said.
The cash from Strategic's second subscription will be used to fund a nickel sulphide drill programme at the highly prospective Hanns Camp prospect within CARE's Laverton project, within the emerging 'Eastern Yilgarn Craton Nickel Sulphide Province' in Western Australia, it highlighted.
In a separate statement, the group said it had stopped activity on its Tatu coal project in New Zealand to concentrate on this new project, and its Cobre iron ore project, after deciding not to excercise the option to buy the remaining 49% of Tatu it did not already own.
The local coal market has deteriorated and bulk samples showed further work would be required to make sure of a saleable product, which would have required more capital.
The parties were unable to agree to extend the option so Strategic must now transfer the 51% it does own back to the project's former 100% owner - KCM- for NZ$1.
Managing director John Peters pointed out to Proactive that Strategic Minerals was cash flow generating: "We need to conserve our capital for the things we think are paying off best for our shareholders," he said.
He said he was mindful that now is not the time to be raising capital and that the latest acquisition, with the planned funding of the nickel sulphide drilling project an avenue for investment the firm considers "more likely to result in short term value growth".
On the outlook for nickel, he said stockpiles have started to run down, indicating greater demand than supply currently, which could point to better prices longer term.
On the CARE buy, Strategic's managing director John Peters told investors: "The company has been looking for an opportunity to diversify its commodity portfolio from the bulk materials sectors of coal and iron ore.
"We believe that nickel and rare earths have good medium to long-term market fundamentals and this bottom of the market acquisition broadens the company's exposure at the right time in the commodity cycle.
"In addition, we believe that the CARE tenements represent an immediate, highly prospective mineral exploration opportunity in an emerging nickel sulphide province that could potentially result in a significant increase in company value if exploration success is achieved."
The Laverton project hosts the Mount Windarra and South Windarra nickel sulphide deposits 12km west of Laverton which together produced 8.1 million metric tonnes at 1.51% nickel (Ni) between 1974 and 1992.
Burke Geoscience evaluated the nickel exploration potential of the Laverton Project in 2013, identifying three high-priority targets.
CARE also holds 100% of a number of tenements in the Northern Territory and Western Australia that are prospective for rare earths including properties adjoining Lynas Corporation's Mount Weld REE Mine, said Strategic.
Peters said bearing in mind the Tatu news, the company's share price hit today was not unexpected.
Shares fell around 35% to stand at 0.165p.