Strandline Resources (the parent entity for the Issuer of the...

Strandline Resources (the parent entity for the Issuer of the Coburn Notes) provided an update on trading conditions at the Coburn mineral sands project prior to the official release of quarterly figures. The production numbers were an improvement on the prior quarter but only marginally above that of the March 2023 quarter indicating significant improvement is still needed. Production for the September 2023 quarter was just circa 30.1k tonnes of heavy mineral concentrate (HMC) with nameplate at approximately 55.5k tonnes meaning there is currently a significant shortfall.

The key positive, is that while the company still needs to rectify several commissioning/ramp-up issues, they appear to be able to be resolved. While there remain some back-end processing issues with the plant, the main constraint is in the mining operations – specifically tailings dam limitations – that is flowing through to the rest of the operations. On the processing side, both the wet concentrate plant (WCP) and mineral separation plant (MSP) should ideally be run continuously and at full capacity. The lack of available ore from the mining operations is causing commissioning issues with both the processing facilities.

The mining operations have been negatively impacted by the lack of availability of the dozer mining units and sand tailings constraints. The company is confident that the former issue is largely fixed but the tailings dam issues will require a long-term solution, and in the interim, potential short-term fixes to ensure higher production levels can be achieved while the problem is resolved. After commissioning, it is now apparent that capacity at the tailings dam is insufficient to meet operational requirements. Accordingly, the long-term solution will likely involve heightening the tailings dam which while shouldn’t come at a prohibitive capital cost, will still require time to build.

In the interim, the company will attempt several short-term measures to minimise the impact on production levels. However, if these initiatives aren’t successful then there appears to be minimal upside to current quarterly production levels of circa 30.1k tonnes of ore at which the company is only approximately breakeven at an operational cash flow level. It is noted that the September 2023 quarter will be especially weak from an operational cash flow perspective as most of the production for the quarter has been stored as inventory with only minimal sales during the period.

The cash position will be reinforced in the short term from the proceeds of a $36.5m capital raising (institutional placement and share purchase plan combined pre-tax) conducted during the September 2023. This capital raising should provide liquidity to accommodate the significant build up in inventory during the quarter and a buffer while operations remain constrained. The company could also potentially monetise its Tanzanian assets which would be a substantial positive if cash can be received for these assets.

In summary, the company remains a long way from achieving feasibility study production levels and doing so will take some time. In the interim, cash flow generation is likely to be minimal and with ongoing interest charges on both finance facilities and debt repayments on the Notes to commence shortly, there remains a significant possibility that the company will once again approach equity capital markets for more funding. As noted, despite the litany of issues, management believes they can be resolved and assuming that this can be demonstrated to investors then further funds will likely be available especially given the substantial upside if the issues can be addressed and taking into account the significant amount of sunk capital already invested in the project.