Research Note RESEARCH NOTE – PATERSONS SECURITIES LIMITED 1 All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof. STRANDLINE RESOURCES LIMITED COBURN UPGRADE ADDS TO AN ALREADY IMPRESSIVE STORY Strandline Resources Limited (STA) announced a 70% increase in the ore reserve in conjunction with release of the DFS at Coburn (WA) underpinning an initial 22.5 year mine life. This junior mineral sands company offers an excellent package of projects, with the near term Fungoni operation in Tanzania offering early cash flow at very low capital investment which should in turn derisk the higher capital long mine life Coburn operation. Third project, Tajiri, in Tanzania adds further exploration appeal. The company is trading at less than half our risk adjusted valuation, which also factors in dilution for the equity component of any capital expenditure. Coburns DFS shows a robust long mine life project. The project boasts a mine life of 22.5 years producing 32ktpa premium zircon, 57ktpa zircon in concentrate, and 20ktpa HiTi90 and 110ktpa Ilmenite. STA’s TZMI pricing deck gives a sales:cost ratio of 2.2:1, with our forecasts generating 1.9:1. Whilst the project has key approvals already in place, we have assumed development will commence behind the smaller, lower capital Fungoni project, giving first production from Coburn likely in FY22 assuming a nominal 18-month design and construction added on to the 12 month construct time for Fungoni. Development capital of A$207m for HMC case with an additional A$50m required for Final Products Case. We have assumed the company adopts the Final Products Case given the high value add this option generates. Whilst there is likely to be a c.6 weeks’ period where only HMC is produced, we have incorporated this within our overall production ramp-up scenario. Tier 1 operation with product likely to be in high demand. Engagement with global consumers has confirmed high demand for the projects in both concentrate and final product form, with the location, close to key infrastructure in WA also seen as a key positive. Experienced management completes the picture. CEO, Luke Graham was the former regional manager of Sedgman Pty Ltd, with Executive Director, Peter Watson the former MD-CEO of Sedgman. Other directors and management have extensive exploration and development experience within the resource sector. 26 April 2019 12mth Rating SPEC BUY Price A$ 0.13 Target Price A$ 0.28 12mth Total Return % 125.8 RIC: STA.AX BBG: STA AU Shares o/s m 320.7 Free Float % 100.0 Market Cap. A$m 40.1 Net Debt (Cash) A$m -2.9 Net Debt/Equity % na 3mth Av. D. T’over A$m 0.016 52wk High/Low A$ 0.18/0.08 2yr adj. beta 0.84 Valuation: Methodology DCF Value per share A$ 0.28 Analyst: Cathy Moises Phone: ( +61) 3 9242 4030 Email: [email protected]12 Month Share Price Performance Performance % 1mth 3mth 12mth Absolute 40.4 50.6 (3.8) Rel. S&P/ASX 300 36.4 42.5 (11.8)
Transcript
Research Note
RESEARCH NOTE – PATERSONS SECURITIES LIMITED 1
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
STRANDLINE RESOURCES LIMITED
COBURN UPGRADE ADDS TO AN ALREADY IMPRESSIVE STORY
Strandline Resources Limited (STA) announced a 70% increase in the ore reserve in conjunction with release of the DFS at Coburn (WA) underpinning an initial 22.5 year mine life. This junior mineral sands company offers an excellent package of projects, with the near term Fungoni operation in Tanzania offering early cash flow at very low capital investment which should in turn derisk the higher capital long mine life Coburn operation. Third project, Tajiri, in Tanzania adds further exploration appeal. The company is trading at less than half our risk adjusted valuation, which also factors in dilution for the equity component of any capital expenditure.
Coburns DFS shows a robust long mine life project. The project
boasts a mine life of 22.5 years producing 32ktpa premium zircon, 57ktpa zircon in concentrate, and 20ktpa HiTi90 and 110ktpa Ilmenite. STA’s TZMI pricing deck gives a sales:cost ratio of 2.2:1, with our forecasts generating 1.9:1. Whilst the project has key approvals already in place, we have assumed development will commence behind the smaller, lower capital Fungoni project, giving first production from Coburn likely in FY22 assuming a nominal 18-month design and construction added on to the 12 month construct time for Fungoni.
Development capital of A$207m for HMC case with an additional A$50m required for Final Products Case. We have assumed the
company adopts the Final Products Case given the high value add this option generates. Whilst there is likely to be a c.6 weeks’ period where only HMC is produced, we have incorporated this within our overall production ramp-up scenario.
Tier 1 operation with product likely to be in high demand.
Engagement with global consumers has confirmed high demand for the projects in both concentrate and final product form, with the location, close to key infrastructure in WA also seen as a key positive.
Experienced management completes the picture. CEO, Luke Graham
was the former regional manager of Sedgman Pty Ltd, with Executive Director, Peter Watson the former MD-CEO of Sedgman. Other directors and management have extensive exploration and development experience within the resource sector.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
Figure 1: Coburn Project Location
Source: Strandline Resources Limited
Figure 2: Coburn Project Main Pit and Tenement Outline
Source: Strandline Resources Limited
26 April 2019 Strandline Resources Limited
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All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
Figure 3: Coburn Ore Reserves
Source: Strandline Resources Limited
Figure 4: Coburn Resources
Source: Strandline Resources Limited
26 April 2019 Strandline Resources Limited
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All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
Figure 5: Coburn DFS Key Financial Metrics and Assumptions
LOM Avg Zircon Concentrate (FOB) is US$495/t
Source: Strandline Resources Limited
26 April 2019 Strandline Resources Limited
RESEARCH NOTE – PATERSONS SECURITIES LIMITED 5
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
Figure 6: Coburn Project History
Source: Strandline Resources Limited
26 April 2019 Strandline Resources Limited
RESEARCH NOTE – PATERSONS SECURITIES LIMITED 6
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
26 April 2019 Strandline Resources Limited
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All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
Recommendation History
Stock recommendations: Investment ratings are a function of Patersons expectation of total return (forecast price appreciation plus dividend yield) within the next 12 months. The investment ratings are Buy (expected total return of 10% or more), Hold (-10% to +10% total return) and Sell (> 10% negative total return). In addition we have a Speculative Buy rating covering higher risk stocks that may not be of investment grade due to low market capitalisation, high debt levels, or significant risks in the business model. Investment ratings are determined at the time of initiation of coverage, or a change in target price. At other times the expected total return may fall outside of these ranges because of price movements and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. This Document is not to be passed on to any third party without our prior written consent.
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All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
88E Patersons Securities have acted for 88 Energy Limited (88E) within the past two years and have received fees for these services.
AKM Patersons Securities have acted for Aspire Nmining Limited (AKM) within the past two years and have received fees for these services.
AXL Patersons Securities have acted for Axsesstoday Limited (AXL) within the past two years and have received fees for these services.
BOE Patersons Securities have acted for Boss Resources Limited (BOE) within the past two years and have received fees for these services.
BRB Patersons Securities have acted for Breaker Resources NL (BRB) within the past two years and have received fees for these services.
BSX Patersons Securities have acted for Blackstone Minerals Limited (BSX) within the past two years and have received fees for these services.
BUX Patersons Securities have acted for Buxton Resources Limited (BUX) within the past two years and have received fees for these services.
CSS Patersons Securities have acted for Clean Seas Seafood Limited (CSS) within the past two years and have received fees for these services.
GLL Patersons Securities have acted for Galilee Energy Limited (GLL) within the past two years and have received fees for these services.
IBG Patersons Securities have acted for Ironbark Zinc Limited (IBG) within the past two years and have received fees for these services.
NUS Patersons Securities have acted for Nusantara Resources (NUS) within the past two years and have received fees for these services.
PEX Patersons Securities have acted for Peel Mining Limited (PEX) within the past two years and have received fees for these services.
RCL Patersons Securities have acted for ReadCloud Limited (RCL) within the past two years and have received fees for these services.
STN Patersons Securities have acted for Saturn Metals Limited (STN) within the past two years and have received fees for these services.
SYA Patersons Securities have acted for Sayona Mining Limited (SYA) within the past two years and have received fees for these services.
VMY Patersons Securities have acted for Vimy Resources Limited (VMY) within the past two years and have received fees for these services.
WKT Patersons Securities have acted for Walkabout Resources Ltd (WKT) within the past two years and have received fees for these services.
XTE Patersons Securities have acted for Xtek Limited (XTE) within the past two years and have received fees for these services.
Patersons Securities and its respective officers and associates may have an interest in the securities or derivatives of any entities referred to in this
material
Patersons Securities does, and seeks to do, business with companies that are the subjects of its research reports.
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All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.
