Strategic Minerals – Not another junior explorer! #SML
Strategic Minerals (SML) is an AIM listed minerals production and development company. The company has no debt, is profitable and has a second income stream coming online later this year, and I don’t believe that recent news has been properly reflected in the share price.
The company’s three main projects are all in stable regions – USA , Australia and the UK. SML’s “strategy is to utilise cash flow from existing operations to fund overheads and thereby provide a base from which to build a diversified portfolio of cash generating high quality strategic minerals operations” (1.8p ask, market cap £25 million).
Director’s holdings – material investments and aligned with shareholders!
Managing Director John Peters declared in a recent interview with Proactive that following his exercise of options, his nearly £1m SML holding is equivalent to more than 50% of his net wealth – that’s conviction!
Peter Wale (whom many investors know from Twitter @RTF83) has a similar size holding – I don’t know if that’s over 50% of his wealth but it’s a decent holding regardless!
All vested options have now been exercised by the Board. Unlike many AIM mining companies who award options that immediately vest or are at par, SML’s options don’t vest until 5.5p (about 200% above the current share price).
The Cash Generator – Cobre Magnetite Stockpile (USA)
Cobre is the backbone of SML and has over the past two years generated c. $3.5m per annum of revenue. This has covered overheads and allowed SML to invest in other projects without diluting shareholders too much.
SML owns the right to mine the magnetite stockpile (as opposed to owning the asset) and has an excellent relationship with the owners as evidenced by the early extension of Cobre Access until 31st March 2020, which will automatically roll over unless one month’s notice is given. This gives time for SMLs second income stream at Leigh Creek to come online.
The Second Income Stream – Leigh Creek Copper Mine (Australia)
Leigh Creek was acquired by SML less than a year ago. It includes: “A processing plant that includes existing heap leach pads and a copper extraction process utilising Kennecott Cones to produce a copper cement (+70% Cu) is located within the Licence area”. This is the type of asset that can be fast tracked to production. SML has indicated that Leigh Creek has the potential to exceed the revenues generated by Cobre.
SML has been drilling at Leigh Creek with the most RNS delivering better than expected results including 1m at 8.7% copper as well as intervals of over 10m at above 1% copper. Intersections started from about 20 meters – which means the ore should be easily accessible.
SML already has some governmental approvals in relation to a “Program for Environment Protection and Rehabilitation (“PEPR”)”, covering the recommencement of copper production and completion of the current drilling programme.
When the Leigh Creek’s term sheet was agreed the following project metrics were shared with the market:
(Source: Aforementioned RNS)
The project already has an off-take agreement at 85% of LME prices and an internal rate of return well in excess of 100%. Given drilling results I expect the resource to increase in size and therefore an increased life of mine should follow. SML has not stated what revenues they’re targeting but they have stated that they expect them to be 30-40% higher than anticipated when they acquired the project.
The Juggernaut – Redmoor Tin Tungsten (Cornwall, UK)
The Juggernaut is what John Peter’s has dubbed Redmoor. Last week, SML announced a 200% increase in contained metal in its 50% owned joint venture with ASX-listed New Age Exploration. SML has previously announced Bonanza Grade Intercepts of up 29.86% tin equivalent. SML produced the following chart to show how the upgraded resource ranks:
(Source: Strategic Minerals)
There is “further potential to increase the resource”.
Peter Wale has discussed the upgrade publicly.
Redmoor is still early stage with no scoping study or PFS but investors will hope that it proves to be the world’s largest undeveloped underground tin mine, with very high grades (as suggested by the above chart), with high NPV and IRR to match.
The tin price has been firm:
Strategic Minerals is a company backed by quality cash flows, management and assets in stable jurisdictions. Even allowing for the fact that the shares are illiquid and volatile, I don’t believe that the recent news has been properly reflected in the share price.
The Board are aligned and will look to protect both investors and their own capital. I look forward to the continued news flow from SML during what promises to be a busy 2019.
At the time of publication the author holds a long position in SML