STA-Undervalued Stock

This stock must be one of the best buys in the Mineral Sands space .A massive re rating will occur in short term in my opinion.
Higher mineral sands prices augur well for juniors Image and Strandline
Plus, Dateline highly-leveraged to impending drilling program at high-grade Colorado gold project
22nd February 2019
Barry FitzGerald
There was good news for the junior mineral sands players in the annual profit report from the mineral sands king of the ASX, Iluka.

The report confirmed Iluka had enjoyed a 41% increase to $US1,351/t in its weighted average zircon price for 2018 while rutile pricing was 21% higher at $US952/t.

Prices are currently higher than last year’s averages, with Iluka lifting its zircon reference price to $US1,580/t from October 1 last year for six months. Iluka said its customers had swallowed it with “positive” feedback, if that were possible.

Iluka has also secured price increases ranging from 8% to 11% for rutile/synthetic rutile. The rises are for all volumes contracted in the first half 2019.

Just as important was Iluka’s read on the market outlook for 2019. It said it expects the market for zircon to remain balanced. For high-grade titanium feedstocks, the expectation is for things to remain “tight.”

All that is good news for the juniors in the minerals sands space, where the trickledown effect is starting to take hold.

That has been reflected in the recent share price performance of newbie producer Image Resources (IMA). Its share price has motored from 11c to 18c since the start of the year thanks to the dream commissioning of its zircon-rich Boonanarring project in WA’s North Perth Basin.

Image is now a $172m company, which is no surprise given its recent (calendar) 2019 guidance for project EBITDA (revenue from the sale of its heavy mineral concentrates less project operating costs) from Boonanarring of $40-$50 million.

Another to benefit in the junior space is Strandline Resources (STA). The return of strong minerals sands pricing comes as Strandline is on the cusp of securing financing for the $US32m development of its Fungoni project in Tanzania.

In a research note dated February 14, Hartleys estimated EBITDA from Fungoni of $21m annually ($17m on an attributable basis). Using spot prices, at it becomes $27m annually ($21m attributable).

That’s kind of interesting in itself given at its current price of 10c, Strandline’s fully diluted market cap is $36m. But it has to be remembered that Fungoni is very much a “starter” project for Strandline in Tanzania and that it also owns the advanced and much larger Coburn mineral sands project in WA.

The way Hartleys put it, Strandline has an 11c value on Fungoni alone, meaning there is next to nothing in its current market rating for Coburn and its Tajiri project in Tanzania, with the latter shaping up as new Tier 1 opportunity.

Its why Hartleys has a 22c 12-month price target on the stock.