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Strategic Minerals PLC: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Strategic Minerals will shortly be adding a second income stream, as it continues to focus on the metals of the future

Strategic Minerals has a carefully crafted portfolio of projects in New Mexico, the UK and Australia
Strategic Minerals will shortly be adding a second income stream, as it continues to focus on the metals of the future
INVESTMENT OVERVIEW: SML The Big Picture
The Cobre project in New Mexico

“We’re focussed on materials for the future,” says Alan Broome, the non-executive chairman of Strategic Minerals Plc (LON:SML)(OTC:SMCDF).

“And we’re not guessing either. We’re using information from reliable analysts from investment banks.”

Broome also highlights analysis from MIT as supporting the choices Strategic Minerals has made.

“MIT’s top in-demand material for the future is tin,” says Broome.

“And we have that at Redmoor in the UK. The seventh on the list is tungsten, which is also found at Redmoor. And in between are cobalt and nickel, both of which occur at the Hanns Camp and Central Australian Rare Earths projects.”

Strategic Minerals also has copper at the Leigh Creek property in South Australia, where drilling is currently underway.

Although not on the MIT list, there are plenty of other analysts around who think the future for copper is pretty bright too, partly because it’s so ubiquitous, and more specifically because of the miles of wiring that will go into all the new electric vehicles that are getting built. This is also a view that’s been publicly stated by senior executives at BHPBilliton as justification for a continued focus on the development of new copper projects.

In the case of Strategic Minerals, as to some extent is the case with BHPBilliton too, this future vision is supported by cash flow from a bulk commodity, magnetite.

Indeed, what marks out Strategic Minerals from many of its peers is the consistent track record of production and cash flow from the Cobre magnetite mine in New Mexico, and the stability that brings.

Not for Strategic Minerals the need to dilute down shareholders in the name of keeping the lights on. After all, Broome and chief executive John Peters themselves are significant shareholders, so their interests are well aligned with other investors.

Instead, the company can fund its operational and administrative overheads from the profits from Cobre, which in the 12 months to September 2018 produced just over 74,000 tonnes of ore to generate revenue of slightly less than US$5mln.

Some juniors will struggle to raise that much in equity, but for Strategic it’s not an issue. Instead it allows for a measure of long-term planning that’s not always evident in companies that simply have to chase the metal of the moment, watching all the time for windows to open in the equity financing environment.

It’s this kind of long-term thinking that has allowed Strategic Minerals to develop its focus on the materials of the future, and it’s also an element in the thinking of chief executive John Peters when he compares the company to majors like BHPBilliton and Rio Tinto.

Although the disparity in size is obvious, the similarities are also striking.

“We have a small mine that pays for itself and a few larger projects coming in,” says Peters. “That’s how Rios and the BHPs got started.”

In the UK, of course, much of the focus is on Redmoor, particularly now that near-neighbour Wolf Minerals has fallen apart.

Is there an opportunity there as the Strategic Minerals work programmes move from exploration into development for some sort of combination with the distressed Wolf assets?

At the moment that seems unlikely, although neither Peters nor Broome rule anything out in the future.

“Our Redmoor project is a very different beast,” says Broome. “It’s hard rock and underground and has a higher tin component.”

Wolf’s Hemerdon project by contrast was primarily tungsten, and in a type of ore that the plant there struggled to process.

“Ours is higher grade and we don’t need to process as much,” adds Broome.

Ongoing drilling work is now moving Redmoor into the pre-feasibility stage, so 2019 is set to be an exciting time for the company, and overall Peters reckons production is about three years away.

Meanwhile plans at Leigh Creek are progressing towards the production of 200 tonnes of 70% copper concentrate per month, to be sold at 85% of the LME price. At the moment new areas are being drilled out to expand development options, but the plan is for production to recommence next year, at which point a second income stream will be added to the portfolio.

So, Strategic Minerals is beginning to build real strength in depth, with cash flow set to grow and a production profile well aligned to the future.


 

 

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