Strandline shares set to double, says new report from Foster Stockbroking

The prospect of further offtake agreements and completion of project funding has prompted Foster Stockbroking to increase its price target for emerging mineral sands producer Strandline Resources.
4th September 2020
Resources Rising Stars

The prospect of further offtake agreements and completion of project funding has prompted Foster Stockbroking to increase its price target for emerging mineral sands producer Strandline Resources.

Foster lifted its price target from 42c a share to 53c this week (shares are currently 25c), citing several impending share price catalysts as it counts down to the start of construction at its Coburn mineral sands project in WA.

“Strandline’s recent $18.5 million equity raising bolstered its cash to $23 million, allowing it to maintain momentum as it seeks to finalise financing by its October Final Investment Decision (FID) target,” Foster said in a fresh research note. “Funds provide readiness for early works, front end design, and long lead procurement.

“Early works that the company is preparing for include the 43km access road connecting Coburn to the North West Coastal Highway, bulk earthworks, pads, and other site roads.”

Foster says further offtake agreements are likely, noting that 100 per cent of Strandline’s rutile and 30 per cent of its premium zircon have not yet been contracted.

“We believe that one or both of these may be finalised prior to FID,” it said. “Some of the potential customers for these, as well as Coburn existing off-takers, may be in the mix for any strategic equity component of Coburn funding.”

Fosters says commercial debt for Coburn and the FID are on track. “Strandline has been progressing its finance negotiation and documentation with banks, specialist funds, and other debt instrument providers to close the debt funding for Coburn, a precursor to determine its equity requirement for the project,” its report says.

“We expect this to be completed prior to the October 2020 FID target. We assume a further $90 million of equity and $200 million of debt (inclusive of $130 million from NAIF) in our forecasts.”

Foster also noted that deferral of the FID for Base Resources’ Toliara project had tightened the mineral sands market, which was positive for Strandline.

“Base Resources recently announced it has deferred its FID on its Madagascan Toliara project to no earlier than September 2021, due to COVID and fiscal terms not yet finalised,” Foster says.

“This was one of the few sources of new supply and now it seems unlikely to come onstream before mid-2020s. Its delay should be positive for timing of Coburn and mineral sand prices.”

Foster cited six share prices catalysts: 1) Remaining  Coburn  offtake agreements; 2) Commercial debt financing for Coburn; 3) Coburn FID; 4) Commencement of Coburn construction; 5) Start of production; and 6) Progress on the Fungoni mineral sands project in Tanzania.

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