Strandline Resources’ (ASX: STA) successful debt raising for its Coburn mineral sands project in WA has triggered a wave of fresh buy recommendations from leading analysts.

Senior analysts at brokers including Fosters and Shaws have put price targets well above 50c on the stock (currently ~27c) following news that the company has secured all the required debt for the development of Coburn.

The combination of the recent US$60m bond issue and the already-approved $150 million loan from the Federal Government’s Northern Australia Infrastructure Facility means Strandline is well on the way to becoming a world-scale mineral sands producer at Coburn.

The Coburn feasibility study shows the project is set to be a big winner for Strandline shareholders, catapulting the company into the ranks of major mineral sands producers with outstanding financial returns and the added benefits of having binding offtake contracts and being in a tier-1 location.

This means Strandline is ideally placed to ride the wave in mineral sands prices, which are forecast to continue increasing due to lack of investment in new projects for many years and growing demand from a wide variety of industrial applications.

There is also the prospect of takeover action, as leading resources commentator Barry FitzGerald noted in his latest highly popular weekly column.

FitzGerald says mineral sands king Iluka Resources “is facing competition for the investor’s dollar from new projects looking to capitalise on the rosy outlook for the sector, unless of course Iluka seeks to continue to dominant the space by taking out the new competitors with a takeover bid rather spend on its organic growth options.

“One of the fast-emerging competitors is Strandline.

“Coburn has scale about it, with a mine life of more than 20 years and annual output accounting for about 5 per cent of global zircon demand and 10 per cent of demand for chloride ilmenite for the pigment market.

“So will Iluka sit back and let it enter the market as an independent producer?”

In a report published shortly after news of the debt deal broke, Foster Stockbroking set a 56c price target, saying it believes construction at Coburn is on track to start in the middle of this year.

Shaw and Partners set a 52c price target, noting that completion of the debt paves the way for a final investment decision at Coburn.

“Coburn is a world-class project,” Shaws said in their report. “Coburn will supply about 5% of world zircon and 10% of world chloride ilmenite demand.

“At current mineral sands prices, Strandline is trading at just 1.2x EBITDA once Coburn is in production.

“Strandline has binding take-or-pay offtake agreements, covering over 90% of revenue for the first 5-7 years of production from Coburn.

“It has already commenced early works construction and has a number of contracts in place.

“Strandline is enjoying strong momentum following a series of positive announcements and we expect that trend to continue as the Coburn project approaches FID.”

 

This story was developed in collaboration with Strandline, a Stockhead advertiser at the time of publishing.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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