After years in the doldrums, mineral sands prices are bouncing back, thanks mainly to a lack of new mines. This means highly-leveraged juniors such as Strandline, which has a pipeline of projects, are starting to feel a tailwind. Plus, Encounter dangles the carrot with results imminent from drilling near Telfer.
Mineral sands prices have bounced back from the pummelling they took between 2013-2016. The 40% share price gain for the industry leader in this market Iluka since March is ample demonstration of the recovery underway.
Zircon is in tight supply, with Iluka having announced a couple of reference price increases during the year. Prices have also improved for rutile but the urgency for restocking by the pigment end users is not as severe.
While the higher prices are not reflecting a surge in demand for mineral sands, they do point to the need for the return of incentive pricing for the global industry to begin investing in new capacity to offset a depleting production base.
That is patently good news for the juniors of the industry as the higher pricing will provide fresh momentum to their development ambitions.
The momentum has not yet been reflected in leveraged share price gains for the juniors who suffered something shocking share price-wise during the big chill of 2013-2016.
But assuming the higher prices for mineral sands holds together, it will come. Because one thing is for certain, the need for new mines – even at modest consumption growth rates – is not going to go away.
One of the juniors that has been waiting for its re-rating in light of the improved pricing is Strandline Resources. It traded yesterday at the princely price of 0.8c for a market cap of $25m, with its sub-1c pricing a feature for most of the year, notwithstanding the rebound in mineral sands prices.
There is a simple explanation for that. Strandline has a dual focus in Tanzania and Australia, with Tanzania spooking the resources world earlier this year with its grab for a bigger share of the resources pie.
The grab had as its target the gold producers sending concentrates out of the country which obviously raised transparency questions about whether the correct taxes and royalties were being paid.
Fired up by that, the government went a step further and grabbed a 16% free-carried interest for its people in the mining projects. Outrageous some said. But a more pragmatic response was that the country probably needed to rebalance its industry take in line with modern rather than colonial expectations.
Anyway, things have settled down and everyone is talking to each other again. More importantly for Strandline, mineral sands were clearly not the target of the government grab, even if the 16% free carried interest sticks in the company’s mining licence application for its first project in the country – the Fungoni project just to the south of Dar es Salam.
The development would be a first for Tanzania, which is keen to see the benefits of mineral sands industries in neighbouring countries flow in to the country. A recently released DFS on the project pointed to a $US30m zircon-rich development generating strong margins.
It is very much a starter project for Strandline in the country, with more projects to be brought forward for development as they are proved up in the group’s exploration efforts in the north of the country.
Interestingly, Rio Tinto, one of the true heavyweights of the mineral sands business, shares Strandline’s enthusiasm for Tanzania as a mineral sands destination. So much so it is funding a big joint exploration effort by the pair in the south of the country.
And getting back to this year’s mining law changes, it can be said that Rio signed up to the joint venture after the news hit the wires.
Back in Australia, Strandline owns the ready-to-go Coburn project in WA. It has had $30m spent on it over the years and when it was held by Gunson Resources (which became Strandline through the backdoor listing of the privately owned Jacana), it was once considered good enough - during a period of strong prices - to give Gunson a $65m market cap.
Coburn is a big and long-life development opportunity. Maybe too big for Strandline, which is currently right-sized to handle smaller and modular developments like Fungoni in its own right. That’s why Strandline has flagged it is looking for a strategic partner to get Coburn to the starting stalls.
Argonaut has been following Strandline and on October 10 when the Fungoni DFS was released, it re-set its price target to 2.2c. The target was previously 3c, with the change due to the impacts of the new mining law in Tanzania.
Encounter’s hunt for the next big one
Newcrest’s $93m commitment to extend the life of mining operations at its Telfer gold mine in WA’s Paterson province was good news for a bunch of junior explorers working at finding the region’s next big gold deposit.
The future for the resource-rich but cost-challenged Telfer came under a cloud when the WA government tried to push through a 50% increase in gold royalties which on recent performance, would have wiped out Telfer’s current margins.
But the gold royalty increase appears to have been killed off and Newcrest’s subsequent new investment in keeping things going in the Telfer West open pit, while it considers a bigger investment still in the expanding underground mining operation, makes for a brighter future for everyone in the region.
The juniors there are hoping to find their own stand-alone operations, or come up with potential high-grade feed options for Telfer. And apart from anything else, an ongoing Telfer means the juniors can continue to leverage off the services and infrastructure an operation of its size brings to what would be an otherwise truly remote region.
Now, while it can be said the Telfer commitment was good news for the juniors in the region, it can’t be said that good news translated into share price gains for the little guys.
There are various reasons for that and in the case of today’s interest – Encounter Resources (ENR) – it can be said the celebration was cut short by the exit from its share register by a US fund for no other reason than a new guy had picked up the Aussie portfolio.
That selling is done and dusted, prompting Encounter to hit the Eastern States for an investor roadshow. It has a good story to tell, one that is yet to take hold of the share price. Encounter last traded at 9.1c for a market cap of $18m.
Perhaps the market is waiting for the soon-to-be-released results from a recent drilling program from the group’s East Thomson’s Dome prospect, a gold-copper soil anomaly located on a large dome structure just 5km from Newcrest’s Telfer mine.
The drilling program followed up a previous campaign which indicated the potential for a series of high-grade stacked gold lodes within the gold-copper system, making it similar to Telfer.
Somewhat remarkably given the proximity to Telfer, the reef mineralisation outcrops at various locations and metal detecting has returned nuggets up to 3oz in size.
So the results from the recently completed follow up drilling program are keenly awaited.
And if that’s not what the market is waiting for before kicking Encounter higher, maybe it is what might come of a project generation “alliance’’ with Newcrest, one focused on northern WA and excluding Encounter’s existing exploration ground.
That means Encounter’s Telfer West project, 25kms from Telfer, is also not part of the alliance. A 5km mineralised trend there has intersected high grade gold in two locations 4km apart and is worthy of some serious follow up.
The exploration alliance with Newcrest only got going in July. In essence, Newcrest will fund $500,000 of project generation work by Encounter over the next 12 months, with a 50:50 joint venture to be formed over any approved projects.
It was a nice form of acknowledgement from Newcrest of Encounter’s exploration nous in a part of the world where it is the most knowledgeable itself.
It is a bit early to be expecting something to have come from the alliance and Encounter hasn’t said what it has in mind. But there is a whisper out there that it has already come up with something both Newcrest and the market will like.