Owning one of the best-undeveloped minerals projects (BUPs) is no guarantee of success. But it stands to reason that it helps.
Screening all of the projects out there for their BUP candidature is a major task for the average investor. Thankfully though, the analysts at Argonaut do all the hard work on an annual basis.
Their 2018 review of the BUPs is now floating around and the over-riding theme was that there are fewer of them around this year because of the lag between exploration expenditure rising and discoveries being made.
Argonaut’s ‘bottom-up’ assessment of the BUPs is commodity and management-agnostic and has five key selection criteria: the projects considered for inclusion are at the development stage between scoping study and pre-commercial production, they must have an internal rate of return of more than 25%, they must demonstrate the capacity to be profitable through all market/commodity price cycles, they must have a high likelihood of achieving more than $100m project valuation within 24 months and they must have a market cap of less than $5 billion.
It is well worth a read. But today’s interest is in Argonaut’s inclusion of the mineral sands developer Strandline (STA) in its “special mention projects” that sit in the second tier of the firm’s assessment of who has the BUPs.
Argonaut has a 20c price target on the stock after applying a 30% discount to its 28c a share valuation of Strandline’s start-up Fungoni project in Tanzania and its other interests in the country as well as its much larger Coburn project in Western Australia.
The target price is kind of interesting given Strandline is currently trading at 9.8c. Like the other mineral sands players, it has come under price pressure in the past couple of months because of overblown concerns with rutile prices.
Forgetting for a moment that Strandline’s projects are skewed more to zircon than rutile, the sell-off is despite the advice from the local king of the business, Iluka, that while prices might be softening, the rutile market remains particularly tight. Read more +