- Sandfire Resources reports important resource estimate
- Potential for material uplift in Strata’s net smelter royalty
- Copper price surges 22 per cent since 1 April to all-time high
- Strata share price rises 50 per cent in May
Australian shares in natural resources investment company Strata Investments (AU: SRT – 27¢) have been on a tear in the past month.
This is in part due to the strong copper price. It is also because Australian Stock Exchange-listed Sandfire Resources (AU:SFR), a A$4.3bn (£2.2bn) mining and exploration group that is developing the T3 Copper-Silver and A4 projects in Botswana’s Kalahari Copper Belt, has reported a maiden Inferred Mineral Resource at the nearby A1 copper-silver deposit – and Strata stands to benefit.
Located 20km northeast of Motheo Copper Mine, the A1 deposit comprises 5.6mn tonnes at 1.3 per cent copper and 10 grams per tonne of silver, equating to 73,000 tonnes of contained copper and 2mn ounces of contained silver worth around $845mn at spot prices. Sandfire chief executive and managing director Brendan Harris sees "real potential for the resource to grow as we increase drillhole density and test the open extent of the orebody".
Based on Sandfire’s experience in the Kalahari Copper Belt, it is highly likely that the deposit could be mined as an open cut operation. This not only enhances the financial viability of the A1 project, which already benefits from its proximity to Sandfire’s processing facilities, but should expedite production timelines, too. With the copper price trading close to an all-time high of $11,440 per tonne, and strong fundamentals supporting a high price, expect the A1 project to be given the green light in due course.
It is a significant development for Strata which holds a 2 per cent uncapped net smelter return royalty (NSR) across an area covering 8,000 square kilometres of Sandfire’s mining projects, including both the A1 and A4 projects. The NSR on the A4 project accounted for $22.6mn (£11.8mn) of Strata’s net tangible asset value (NTAV) of $46.4mn on 30 April 2024, so it is an important asset.
The maiden resource estimate on the A1 project not only supports the potential for royalty revenue from future mining operations, but it will also increase the value, marketability and potential sale price of Strata’s royalty interest. It could be material for shareholders given that the NSR over the A1 project is not included in Strata’s NTAV.
Blue sky potential
The company’s chief executive Michael McNeilly has a point when he says that “we hold a one-of-the-kind copper-silver royalty interest with substantial blue-sky potential and clear near-term value catalysts”.
For instance, the first ore from the A4 project is on track to be delivered to the Motheo processing plant in the third quarter of 2024 and Sandfire has now completed a programme of 29 drillholes at A4 to test for dip and strike extensions of the known mineralisation. In addition, the valuation of the A4 project uncapped NSR embedded a medium-term copper price of $9,605 per tonne and a resource size of 9.7mn tonnes, both of which should have material upside to drive up the value of the royalty.
It’s certainly good news for shareholders, many of whom will have bought shares on my advice when the shares were previously listed on AIM under the name Metal Tiger prior to the transfer of the listing to the ASX (‘A change in listings could make this stock a bargain’, 9 March 2023) and continued to hold when I covered the annual results (‘Is this mining investment company still worth holding?’, 18 March 2024). The share price has risen 50 per cent since then and now trades in line with a conservative-looking TNAV of 27.4c.
I expect further share price upside as more investors cotton onto the hidden value in Strata’s NSRs, so I would run your gains. Hold.
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