Strandline on the way back after Tanzania troubles
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Trouble in Tanzania hit Strandline Resources hard last year.
But a revival might not be far away at a mining project which is effectively in the backyard of the Perth-based explorer — as well as representing a “back-to-the-future” trip for the stock.
What hurt Strandline (ASX:STA) and most other miners operating in the East African country, was a government-policy flip which saw the welcome mat withdrawn and tougher mining laws introduced, complete with a punitive tax policy.
The case of Barrick Gold and Acacia Mining was the headline-maker with those companies whacked by the world’s biggest back-tax bill, a whopping claim for $US190 billion ($239 billion) which shocked investors, not simply because of its size, but more because it was a total fabrication.
Tanzania’s government eventually settled the dispute by accepting a payment of $US300 million, plus a bigger stake in the companies’ goldmines.
Doubts remain over Tanzania
Despite the dust seeming to have settled, Tanzania has damaged its reputation as a mining-investment destination, and while Strandline continues to report highly encouraging exploration results from a number of heavy mineral projects along the coast, doubts remain about the government and whether it might spring another surprise.
For Strandline that uncertainty could see it elevate an Australian heavy minerals project which came close to a development decision eight years ago, the last time prices for titanium and zircon were enjoying buoyant prices.
The Coburn project, located roughly halfway between Geraldton and Carnarvon on the WA coast, was taken to development ready status when Strandline traded under its previous name of Gunson Resources.
Getting Coburn to its advanced status — complete with a substantial resource base and attractive 26 per cent internal rate of return — wasn’t easy because of environmental hurdles. They were cleared just in time to be hit by a cyclical downturn in prices for titanium minerals and zircon in a market flooded by excess production.
Conditions in the titanium minerals and zircon market have changed significantly over the past two years thanks to a combination of producer discipline (big miners such as Iluka Resources mothballing projects), and Chinese demand rising for what are very basic raw materials used largely in paint and ceramics.
The return of Coburn as a potentially viable development could be one reason why Strandline’s share price has risen by 43 per cent since just before Christmas, from 10.5c to 15c, with those prices also reflecting the effect of a major capital reconstruction late last year.
But the share price rise could also be a result of the latest news from Tanzania which includes high-grade drilling results from the Tajiri prospect which is one of a series of coastal exploration targets running almost to the border between Tanzania and its northern neighbour, Kenya.
The location of Tajiri within the broader Tanga project is important for two reasons.
Heavy minerals are generally found in coastal locations thanks to their being concentrated by wave action, and 40km north of the border is the Kwale heavy minerals mine of ASX-listed Base Resources, the first significant mine of any sort in Kenya.
Finding heavy minerals on the Tanzanian coast could prove to be the easy bit for Strandline.
Getting government approvals will be another challenge, and being able to take those approvals to bankers for project funding will be an even bigger hurdle given what happened to Barrick and Acacia when the government reneged on an agreement.
It’s that history which could be shifting Tanzania onto the back-burner for Strandline just as another piece of history, the Coburn project, rises back to prominence, either as a development opportunity while mineral prices are high, or as a project to be “monetised” in some other way, either through a partnership, or sale.
With Strandline putting a net present value on Coburn of $306 million, the company should be able to negotiate an attractive deal, or secure funding.
Management has acknowledged the potential for both possibilities, saying in a November presentation that it had “corporate appeal at both project and corporate level”.
That expression, “corporate appeal” could mean different things to different people, but a reasonable interpretation is that it means Strandline is ready to deal with fresh investors now that it has cleared up a bloated share registry through the capital reconstruction and with two heavy mineral projects poised to benefit from rising commodity prices.
Not widely-researched the latest analysis of Strandline from Argonaut Resources rated the stock as a speculative buy with a target share price of 26c — 73 per cent higher than its latest sales.
Argonaut’s report focused on the company’s Tanzanian assets, particularly the small but high-grade Fungoni deposit and the emerging Tajiri discovery, but the return Coburn received an interesting mention.
“We also anticipate potential monetization or partnering on the Coburn project,” Argonaut said.
Timing has never seemed to work in Strandline’s favour thanks to the Tanzania Government’s foot-shooting attack on its mining sector, or when the business traded as Gunson and mineral markets turned against it.
That run of misfortune could be changing with mineral markets up strongly and with two projects showing promise, either as development or trading opportunities.