With shares of Strategic Minerals Plc (LON:SML) up more than fivefold this year, managing director John Peters is feeling even more upbeat than usual.
The ebullient Strategic Minerals boss is in London for a couple of months and popped in to the Proactive Investors’ studio with UK-based non-executive director Peter Wale last week to give a review of Strategic’s operations.
The Strategic Minerals strategy: long on diversification
Speaking to Stocktube presenter Andrew Scott, Peters explained the underlying principles behind the way the company works.
“We try to find assets that we believe are undervalued at the moment, add some development capital to them, and try to sit through until the market starts to appreciate what the underlying value is,” Peters said.
“We can do that, simply because we’ve got the cash flow coming through from Cobre.”
The company acquired the rights to the Cobre magnetite operation in New Mexico, United States in 2011 and with it a market-ready stockpile of magnetite.
Peters describes it as a very simple operation that is very lucrative, and which gives the company good cash flow.
The company recently declared its maiden operational profit, and after two successful fund-raising exercises last year is in the sort of healthy cash position that other mining juniors envy.
That leaves the company well-placed to progress work on Redmoor, a tin/tungsten project in Cornwall.
Wale said the company is in the midst of the drilling programme, with the first results expected to be announced in the third quarter.
The-non-exec believes Strategic Minerals (SML) has the chance to produce a legacy project.
“There’s no question it is a ‘big animal’,” Wale concedes. “The dynamics for tin are pretty good, but it is not a project you can instantly turn on.”
CARE and intention
Meanwhile, the company has recently completed its acquisition of the CARE nickel sulphide project in Western Australia.
CARE stands for Central Australia Rare Earths, a company SML bought out, acquiring the 50% it did not already own at a cost of £525,000 plus 19mln new SML shares at an assumed issue price of 2.75p per share.
Peters said the 2.75p was “about in the middle of the range where we think the share price should be,” so with the shares currently trading at 2.29p, you can take that as a nod and a wink that the SML management team still thinks its shares are undervalued, even after rising 470% over the last year.
The seller of the 50% stake, Rarus, now has a major stake in SML, giving it a continued interest in the CARE project but also SML’s other assets, which as we have seen, cover a wide range of minerals, as does the CARE project just by itself.
“We think it is a great project,” Peters said of CARE.
“We’ve got – and in no particular order – cobalt; we’ve got gold prospectivity; we’ve got nickel sulphide; we’ve got rare earths”.
Were he a fan of the South Pacific musical he might at this point sing out: “What ain’t we got? We ain’t got dames!”.
Instead, he observes all of those minerals are all showing interesting dynamics on the pricing front.
Wale adds that “any one, or multiple ones of them, could be very significant value drivers” for the project.
Not to be outdone by Peters on the ‘we’ve got’ claims, Wales added: “We’ve got high prospectivity, decent optionality and we’ve got the nearology. There’s everything in our favour.”
At the risk of mixing my Broadway musical references, it sounds like that everything’s coming up roses.
The plan is to do some drilling in the second half of the year.
Open to spinning more plates but not looking for flavour of the month
Both Peters and Wale stressed the benefits of SML’s portfolio approach.
Neither claimed to know which of the many minerals they are planning to mine will result in them hitting a six out of the ground (no home run references for this Aussie and Brit), but they do like the chances of one of them turning out to be a major success.
While they did not rule out the prospect of SML taking interests in more projects, both were adamant that they would not go looking for whatever is the current hot thing.
So, they’re probably not looking at buying a lithium prospect in Arizona then …
“We can move quickly [to acquire something] and we’re a very tight, cohesive team, we’re still going to make a smart decision, rather than a quick decision for the sake of it,” Wale said.
Still in the early stages of what will be a long journey
Tempted though shareholders might be to cash in after the share’s stratospheric performance this year, Wale thinks most of SML’s shareholders are of the ‘buy & hold’ persuasion.
Both Wale and Peters think there is plenty more to come from SML.
At the recent shareholder meet and greet, management was frequently asked which of its projects offered the most upside.
Peters likened it to being asked to name which of your kids was the favourite, but he did give this synopsis of the SML portfolio.
“Cobre is like our short-term darling, because it’s going to give us the cash flow; CARE is probably our medium-term darling,” Peters said.
“Then we believe the juggernaut will come in, which is Cornwall,” Peters declared.