stock resource report

Hi all, new to HC but had shares in SRK for some time until recently. Here is why I sold; good luck to all holders

SRK; Sell around $2.66

There are mixed messages emanating from Strike Resources in recent months, contributing to share price volatility and investor uncertainty. Key recent events include the possible sale of its Peruvian iron ore interests, a major capital raising and the sale of around 5% of the capital of the company as a consequence of the Opes Prime collapse.

Capital Raising
Earlier this week Strike completed a $32 million share placement to Australian, UK and US based institutional and professional clients of BBY through the issue of 13.051 million shares at an issue price of $2.45.

Potential Sale
In mid March (in response to an ASX query) Strike disclosed to the market that it was in discussion over the possible sale of its Peruvian assets. In its recent quarterly report the company noted that:

“The Company confirms that it, together with the other owners of the Cuzco and Apurimac projects, have been in negotiations with a group led by a major international mining company for the potential sale of up to 100% of those projects and the Company’s other Peruvian iron ore assets for a total sale price of US$650 million, which valued the Company’s interests at approximately US$450 million. The Company confirms that whilst negotiations are continuing no binding agreement has been reached by the parties.”

While the report notes that discussions are ongoing, it is unlikely that Strike Resources would have undertaken the recent $32m capital raising if it believed the a sale was imminent.

Discussion and Recommendation
Our interest in Strike Resources’ has centred on its potential to establish a large scale iron ore operation based on its Peruvian deposits. However, the company’s commitment to this goal is uncertain following the disclosure that it has been negotiating the possible sales of its interests.

The likelihood of Strike achieving a sale is uncertain. It has been two months since the company first disclosed that sales discussions had occurred, with no specific progress reported. More recently the company has undertaken a $32m capital raising (to fund advancement of the iron ore project), suggesting that management does not believe finalisation of a sale is imminent.

The current Strike Resources share price includes a premium for the probability of a deal being consummated. Assuming the company achieved the previously disclosed potential sales price of US$650m (net US$450m to Strike), this would translate into a share price in the order of $4.00 for Strike – thus quantifying the upside potential for investors. Conversely, in the month leading up to the disclosure of a possible sale the Strike share price had been in a range of $1.50 to $2.00.