Morgans, page-18

Strandline Resources (STA)

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Achieves commercial production of Heavy Mineral Concentrate (HMC) Two weeks ago, STA confirmed is had achieved first ore processing at the Coburn WCP. Today STA has confirmed it has now achieved first production of saleable HMC, which it is now stockpiling ahead of first shipments. STA expects to make its first HMC shipment (first revenue) next month, in line with previous guidance and our expectations. STA today also flags pre-commissioning of the downstream Mineral Separation Plant (MSP) from next month, also in-line with our forecasts. Ongoing ramp-up/ de-risking Full ramp-up of the WCP to full production to design parameters is likely to take a month or two. We understand that the in-pit mining units (productivity a key driver here) are ramping up well, and that the materials handling characteristics of the ore (sand) are performing to expectations. Fine tuning/ snagging of the WCP is ongoing, as is normal in the ramp-up of an operation of this type. Investment view We were at Coburn last month and follow-up noteStrandline Resources - Heavy Mineral Cashflow catalyst imminent, October 18explains why first sales of HMC is such a material de-risking event for investors and therefore a material catalyst. 2023 will be a year of operational de-risking. By mid-year investors should receive comfort in STA’s ability to generate compelling long term cashflows (~$100-150m EBITDA p.a.) offering clear growth optionality. STA is a rare investment proposition. It enjoys; 1) 100% ownership of a world-scale/ strategic asset in a tier 1 jurisdiction, 2) lenient debt terms; 3) visibility on upcoming cashflow/ de-risking; 4) proven, backable management, 5) a reputable board; and 6) clear M&A appeal while trading at a material discount.Maintain Buy. First saleable HMC production confirmed (18 November) Commercial Production of HMC Product at the WCP First ore processing at Coburn – (2 November) Coburn expansion progress During the quarter, STA progressed early scoping studies to expand Coburn’s production capacity by up to 50%. The site visit highlighted the ability for additional processing capacity to be easily accommodated/ assimilated into the Stage 1 infrastructure now being completed, and potential for latent capacity (particularly in the mining units) to also be unlocked. The expansion looks like an obvious easy decision and one which is not yet appreciated in the share price. Our 75cps target materially discounts an expansion. FID on the Coburn expansion (30- 50% higher WCP throughput) is likely in March 2024 when debt terms allow distribution of surplus project cash to STA (+$120m forecast end FY24). Minerals sands markets – Short vs medium term Downstream global suppliers into the pigment/ Ti02 markets have recently noted evidence of softening demand (particularly in Europe and Asia) linked to softness in housing and construction markets. In our last note, we highlighted that market volatility, if it did unfold, doesn’t solve for the ongoing structural supply deficit in these markets, and in turn would further pressure on supply, amplifying upside pressure on price for when conditions normalised. As such we think that compelling price dynamics can persist into the medium term and that current AUD weakness also provides a significant buffer. STA’s comments on its end-markets are worth reading in this context. In titanium feedstocks it notes; 1) low supply-chain stocks; 2) constrained supply; and 3) business-as-usual production intentions from key Coburn customers Chemours and Venator both in the USA. In Zircon STA and TZMI notes some weakness related to China COVID shutdowns but that pricing has held up strongly in both China and other markets, such that price expectations still sit well above those used in the Coburn DFS (spot above US$2,000 vs DFS at~US$1,495/t).