Strandline poised for re-rate on bumper mineral sands prices and countdown to production
Plus, Bellevue Gold set for juicy cashflow on low costs and 200,000oz a year, Inca gets pulses racing with some good-looking core from the NT and Josh Pitt’s $6m Traka works up its porphyry targets.
9th June 2022
The primer for this year’s Resources Rising Stars two-day 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 road map to do just that, outlining a case in his understandably pumped day-one presentation for a major re-rating of the company as it approaches first production and cash flow from its $340 million Coburn mineral sands project in WA’s mid-west.
Coburn is 75% complete and on time and budget, which is an achievement itself in the resources space given the widespread cost pressures and labour/materials shortages. More to the point, it will be coming on stream as mineral sand prices continue to be on the right side of the boom.
The basket price for Coburn’s zircon, titanium and rare earths products is currently more than 35% higher than what was plugged into its definitive feasibility study in June 2020, with the elevated pricing a response to the well-accepted emergence of mine supply deficit in coming years.
Coburn is part of the response. It will account for 5% of the global zircon market, 10% of the chloride ilmenite (titanium) supply, plus a little bit of the rare earths market, for decades to come. So it is a big deal in the mineral sands market.
All that has yet to be translated into a re-rate for Strandline, which last traded at 35c for a market cap of $440m, remembering that Strandline is fully-funded on Coburn and is also holding $55m of corporate cash.
The now clearly-modest price assumptions used in Coburn’s DFS pointed to annual EBITDA of $104m, which in itself is interesting stuff given the company’s current market cap. Plug in the higher prices, and it is doubly interesting.
“If you believe the analysts, we are on our way to a $1 billion (market cap) over the next six months,” Graham noted. That was based on an 80c price target by Shaws which, if it comes to pass, would give Strandline a $992m market cap.
It would be some achievement given that when Graham came on board five years ago Strandline was a $14m company.
Graham is not finished with Strandline’s growth trajectory. “This is not a single project company by any means,” he said. It was a reference to the group’s niche and large-scale mineral sands projects in Tanzania.
London’s Tembo Capital has backed Strandline for six years and continues to hold an 18% stake. So it continues to cheer on the company more than most and according to Graham, given the coming re-rate, they are “not going anywhere from what I understand”.
There was not much in the way of gold excitement at the RRS conference, which was not surprising really as the yellow metal has not exactly been inspiring of late.
Having said that though, it is easy to forget that at $US1,852/oz ($A2,580/oz), gold remains at elevated levels and has a bunch of macro factors working in its favour.
Bellevue (BGL) boss Steve Parsons was reminding investors at the conference of just that. And why wouldn’t he when the company’s namesake high-grade project in WA is on its way to becoming a low-cost producer in the second half of next year.
Bellevue is expected to produce its gold at bottom-quartile all-in sustaining costs of $A1,000-$A1,100 an ounce, highlighting just how fat margins in the business can be when an operation is at the bottom of the cost curve.
The company is fully-funded to first production at an annual rate of the 200,000 ounces in the first five years and on feasibility numbers, it will generate annual pre-tax free cashflow of $254m for the first five years of production from a mine life building to something well beyond 10 years.
Parsons used the backdrop of the conference to confirm the project development is proceeding in line with the key financial and technical forecasts. The only difference picked up on by the market was that the first production in the second half of next year was a little later than some had expected.
More importantly though, now that first production in the second half of next year is locked in, Bellevue goes into the re-rating cycle all developers go through as projects are derisked and first production approaches.
The average 12-month re-rate for the recently arrived gold producers Calidus (CAI) and Red 5 (RED) ahead of first production was about 125%. Bellevue now enters that re-rate cycle from a share price of 87c.
Continuing the argument that the broad sell-off might well have created value among the gold stocks, particularly among the newly arrived producers and the advanced developers, it is worth noting that Canaccord has a $1.55 price tag on Bellevue while Macquarie’s equities desk (the bank has provided a currently undrawn $200m debt facility for the project) has a $1.50 price target.
Harder to price into the stock are its green credentials. Due mainly to its high grade, Bellevue will have the lowest greenhouse gas emissions intensity of the ASX gold sector at 0.15t to 0.2t on a per ounce basis.
The industry average is about 0.73t per ounce, although the big volume names can be more than 1.2t per ounce.
No one is sure if producing “green” gold will ever translate into a premium being paid for gold with low associated emissions, but there is no doubt that market valuations for the low emitters stand to benefit under the increasingly green-focussed mandates of the big fund managers.
INCA MINERALS (ICG):
Inca Minerals (ICG) hosted one of the busiest booths at the conference thanks to the excitement over its Mount Lamb prospect at its Frewena project area, a couple of hundred kilometres east of Tennant Creek in the Northern Territory.
Thanks to earlier government work, the region to the east of Tennant Creek is considered a potential new province for big iron oxide copper gold (IOCG) systems like Olympic Dam in South Australia and Ernest Henry in Queensland.
It can now be said that recent drilling by Inca has raised the excitement levels around that proving to be the case.
On display at the Inca booth were core examples of all the types of rock an explorer would hope to encounter in the IOCG hunt.
They came from the first diamond drill-hole at Mount Lamb which returned a 500m-plus interval that displayed strong IOCG-style alteration minerals with variable levels of copper, zinc and lead sulphides.
“The down-hole vertical variation of haematite, magnetite and albite, which is strongly reminiscent of IOCG alteration zoning, is a particularly pleasing result,” Inca said.
While geochemical assaying is required to test for the occurrence and grade of potential precious (gold and silver) and base metals (copper, lead, zinc), Inca reckons the observed geology in the hole “strongly validates the IOCG exploration model in this portion of Mount Lamb”.
So it is early days but exciting, nevertheless. A second hole is underway at Mount Lamb and there will be follow up drill holes to the first diamond hole. Inca popped to as high as 13c on Monday from the previous close of 7.7c. It has since settled back at 10.5c for a $44m market cap.
TRAKA RESOURCES (TKL):
Leverage seekers at the conference made their way 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 cap of $5.7m, Traka has been working up porphyry gold-copper intrusive targets which could be the “feeder” source of the known gold and copper mineralisation in shallower positions at its Mt Cattlin project near Ravensthorpe in WA.
Traka reckons that of the three intrusives outlined, the northern-most in particular is a compelling target as it sits relatively close to the surface.
More target definition work is underway and could lead to the northern-most target being tested by the drill bit before the year is out.
Needless to say, if the porphyry hunt shows any signs of success when drilling gets underway, it will be off to the races for the lightly capitalised Traka.
It wouldn’t be the first time for Traka chairman and biggest shareholder Joshua Pitt of Golden Grove fame. More recently, another company that Pitt chairs, Red Hill (RHI), sold a 40% stake in the Red Hill iron ore joint venture to the lead partner Mineral Resources (MIN) for $400m all up.
© 2022 Resources Rising Stars All Rights Reserved