Strandline set to be re-evaluated on bumper mineral sands prices and countdown to production – Barry FitzGerald
Plus, Bellevue Gold poised to generate juicy cash flow at low cost and 200,000 ounces a year, Inca gets quick boosts with a nice NT core, and Josh Pitt’s $6 million Traka is working its targets of porphyry.
The prelude to this year’s two-day Resources Rising Stars Investor Conference at Royal Pines on the Gold Coast was for the 650 investors and miners/explorers in attendance to ‘be on the right side of the BOOM’.
Strandline (STA) boss Luke Graham provided a roadmap for getting there, outlining a case in his understandable day one presentation for a major reassessment of the company as it nears first production and streams. cash flow from its $340 million Coburn ore. sands project in Midwest WA.
Coburn is 75% complete and on time and on budget, which is an achievement on its own in the resource space given the widespread cost pressures and labor and material shortages. Specifically, it will come into effect as mineral sands prices continue to be on the bright side of the boom.
The basket price for Coburn’s zircon, titanium and rare earth products is currently more than 35% higher than what was plugged into its definitive feasibility study in June 2020, with the high price being a response to the well-accepted emergence of a mining supply shortfall ahead. years.
Coburn is part of the answer. It will represent 5% of the global zircon market, 10% of the ilmenite (titanium) chloride supply, plus some of the rare earth market, for decades to come. So it’s a big problem in the mineral sands market.
All of this has yet to be translated into a revaluation for Strandline, which last traded at 35c for a market cap of $440m, recalling that Strandline is fully funded on Coburn and also owns $55m dollars of corporate cash.
The now clearly modest pricing assumptions used in Coburn’s DFS indicated an annual EBITDA of $104 million, which in itself is attractive given the company’s current market capitalization. Plug in the higher prices, and it’s doubly attractive.
“If you believe the analysts, we’re on track to hit $1 billion (market cap) in the next six months,” Graham noted. This was based on an 80c price target by Shaws which, if realized, would give Strandline a market capitalization of $992 million.
That would be quite a feat considering that when Graham came on board five years ago, Strandline was a $14 million business.
Graham is not done with Strandline’s growth trajectory. “It’s by no means a one-off project company,” he said. This was a reference to the group’s niche and large-scale mineral sands projects in Tanzania.
London-based Tembo Capital has backed Strandline for six years and continues to hold an 18% stake. So that continues to encourage the business more than most and according to Graham, given the new pricing to come, they’re “not going anywhere as far as I understand”.
There wasn’t much excitement for gold at the RRS conference, which wasn’t really surprising as the yellow metal hasn’t been much of an inspiration lately.
That said, it’s easy to forget that at US$1,852/oz (A$2,580/oz) gold remains at elevated levels and there are many macro factors in its favor.
The boss of Bellevue (BGL), Steve Parsons, reminded investors of just that during the conference. And why wouldn’t it when the company’s namesake high-quality project in WA is on track to become a low-cost producer in the second half of next year.
Bellevue is expected to produce its gold at lower quartile all-in sustaining costs of A$1,000-1,100 an ounce, showing just how big the company’s margins can be when an operation is at the bottom. of the cost curve. .
The company is fully funded for first production at an annual rate of 200,000 ounces for the first five years and based on feasibility figures will generate annual pre-tax cash flow of $254 million for the first five years of production from a life of mine. build to something well beyond 10 years.
Parsons used the backdrop of the conference to confirm that development of the project is proceeding in line with key financial and technical forecasts. The only difference noted by the market is that first production in the second half of next year was a little later than some had expected.
More importantly, now that first production in the second half of next year is locked in, Bellevue is entering the reassessment cycle that all developers go through as projects are de-risked and first production approaches.
The 12-month average re-rate for recently arrived gold producers Calidus (CAI) and Red 5 (RED) prior to first production was approximately 125%. Bellevue is now entering this revaluation cycle from a share price of 87c.
Continuing the argument that the selloff may well have created value among gold stocks, particularly among newcomer producers and advanced developers, it should be noted that Canaccord is priced at $1.55 on Bellevue while that Macquarie’s equity desk (the bank provided a currently undrawn $200 million credit facility for the project) has a price target of $1.50.
Harder to assess in the stock are its green credentials. Due primarily to its high grade, Bellevue will have the lowest greenhouse gas emissions intensity of the ASX gold sector, at 0.15 t to 0.2 t per ounce.
The industry average is around 0.73 t per ounce, although high-volume names can exceed 1.2 t per ounce.
No one knows if the production of “green” gold will ever result in a premium being paid for associated low-emission gold, but there is no doubt that market valuations for low emitters should benefit from the higher mandates. in addition to the greens of the big fund managers.
INCA MINERALS (ICG):
Inca Minerals (ICG) hosted one of the busiest booths at the conference on the back of excitement over its Mount Lamb prospect in its Frewena project area, a few hundred miles east of Tennant Creek in the Northern Territory.
Thanks to previous government work, the area east of Tennant Creek is being considered as a potential new province for large iron oxide, copper and gold (IOCG) systems such as Olympic Dam in South Australia and Ernest Henry in Queensland.
We can now say that the recent drilling of Inca has raised the level of excitement around what turned out to be the case.
The Inca booth featured examples of every type of rock an explorer hopes to encounter while hunting the IOCG.
They were from the first diamond drill hole at Mount Lamb which returned an interval of over 500m that exhibited strong IOCG-type alteration minerals with varying levels of copper, zinc and lead sulphides.
“The downhole vertical variation of hematite, magnetite and albite, which is strongly reminiscent of IOCG alteration zoning, is a particularly pleasing result,” Inca said.
Although geochemical analyzes are necessary to test the potential presence and content of precious metals (gold and silver) and base metals (copper, lead, zinc), Inca believes that the geology observed in the hole “strongly validates the model. IOCG exploration in this part of Mont Agneau”.
So it’s early but exciting, nonetheless. A second hole is underway at Mount Lamb and there will be follow-up drill holes up to the first diamond hole. Inca hit 13c on Monday from the previous close of 7.7c. It has since stabilized at 10.5c for a market cap of $44m.
TRAKA RESOURCES (TKL):
People looking for leverage at the conference headed to the Traka Resources booth at the conference, which was manned by the company’s veteran explorer Pat Verbeek.
Trading at the princely price of 0.85c for a market capitalization of $5.7m, Traka has been working on intrusive gold-copper porphyry targets which may be the ‘feeder’ source of known gold and copper mineralization. in shallower positions at his Mt Cattlin project near Ravensthorpe in WA.
Traka believes that of the three intrusives described, the northernmost one in particular is an unavoidable target because it is relatively close to the surface.
Further target definition work is underway and could lead to the northernmost target being drill bit tested before the end of the year.
Needless to say, if the porphyry hunt shows any signs of success come drilling time, it’ll be on for the races for the slightly caps Traka.
It wouldn’t be the first time for Traka chairman and largest shareholder Joshua Pitt of Golden Grove fame. More recently, another company chaired by Pitt, Red Hill (RHI), sold a 40% stake in Red Hill’s iron ore joint venture to lead partner Mineral Resources (MIN) for a total of $400 million.