Been a while since I did a deep dive thread so let's do one now. I've mentioned many times that π¦πΊπ¦ small caps is like the land that time forgot when it comes to deep value...that is evidently true here as well. Note that I am basically sized out by most of these things now...
...and while I do own a few mm shares here it is not at all a meaningful position for me given illiquidity/size of my account.
Having said that if I were managing what I managed 4-5yrs ago I would be all over this as it seems a v positively advantaged bet...let me explain...
Having said that if I were managing what I managed 4-5yrs ago I would be all over this as it seems a v positively advantaged bet...let me explain...
Strata Investment Holdings $SRT.AX is a hodge-podge collection of listed and unlisted mining shitcos (I say that with love) and a jewel royalty over $SFR.AX Sandfire's tenements in the Kalahari Copper Belt (KCB). This deck is a bit old but gives the gist:
wcsecure.weblink.com.au/pdf/SRT/026901β¦
wcsecure.weblink.com.au/pdf/SRT/026901β¦
At its core this is a NAV story - this thing is damn cheap. Stock is 21c, I think NAV today is 53c, ref current copper prices ($4.75). Here is the quick breakdown: 
There are really three categories within this NAV: the investment portfolio; the A4 known royalty; and the A1/blue sky royalty.
We will deal w/ each in turn but the core of the case is the current px is more than backed by the A4 and A1 royalties alone...
We will deal w/ each in turn but the core of the case is the current px is more than backed by the A4 and A1 royalties alone...
...while you get the investment port (14c a share, or more) and all the blue sky upside, for free.
First let's deal w/ the investment portfolio. I've simply taken the last NAV statement (Apr24) and removed the royalty elements:
First let's deal w/ the investment portfolio. I've simply taken the last NAV statement (Apr24) and removed the royalty elements:
NB - this is quick and dirty. I am not in the weeds on many of these shitcos (they own 40+ names). I would note however a cpl of points. Many of the larger exposures are copper related (Cobre Limited, etc); and indeed there are some potential synergies w/ the royalty asset.
Specifically, Cobre Limited owns a portfolio of tenements adjacent to the Sandfire assets in the KCB:
But that is the investment portfolio (the shitco 'gravy').
The real jewel here is the royalty asset. As part of its sale of a former development asset to $SFR.AX, SRT got a 2% uncapped Net Smelter Revenue (NSR) royalty) on ALL the tenements surrounding the Motheo mine area in the KCB...
The real jewel here is the royalty asset. As part of its sale of a former development asset to $SFR.AX, SRT got a 2% uncapped Net Smelter Revenue (NSR) royalty) on ALL the tenements surrounding the Motheo mine area in the KCB...
...excluding the T3 deposit that is. Ie, everything $SFR.AX mines in the red box - 20km radius to its processing plant - $SRT.AX gets a 2% NSR on:
Will get to the nos shortly but why is this valuable? Bec $SFR.AX has built a massive processing plant and expanded production to 5.2mpta - and is looking to extend mine life beyond ~8yr current LOM - and has articulated a plan to keep drilling to feed the mill:
That is, $SFR.AX has made a multi-decade, multi-hundred mm $ investment in the KCB and will seek to extract as much ore as possible to leverage its infra spend - meaning every ounce of the 20km radius of the processing plant will be drilled, in time.
OK, so what is it worth?
OK, so what is it worth?
The A4 discovery - already proven and in the mine plan - supports most of the value of the royalty, alone. If we run a DCF for the A4 proven reserves, only - interpolating production from this zone into the mine plan - we get about $18mm USD, or 17c per share, ALONE:
H/T @respeculator for helping me w/ the DCF math. Note the inputs are all based on co disclosures re grade, payability, and I used $4.75/lb as the Cu price.
The discount rate is important - I used 7%, which looks high for a royalty multiple. I believe if this were to transact
The discount rate is important - I used 7%, which looks high for a royalty multiple. I believe if this were to transact
...than a 7% DR would prove conservative (more on this later).
In any case the point is the proven reserves, being mined by $SFR.AX in the next few yrs as per the mine plan, cover most of your value, today.
But that's not all... πͺπͺ
In any case the point is the proven reserves, being mined by $SFR.AX in the next few yrs as per the mine plan, cover most of your value, today.
But that's not all... πͺπͺ
$SFR.AX is continuously looking for new deposits to feed the processing plant. The A1 zone is likely the next contributor to the beast. We do not know when this ore will be fed through the PnL, but even using 1Q'24 disclosed estimated resources - a no that will rise...
...at a reasonable discount/risking factor (60% here), the A1 zone alone is worth another $8mm, or 7c/share:
But what else? this is a perpetual royalty over the entire 8000 sqkm package; and this mine is likely to have a multi-decade life. $SFR.AX has articulated a plan to keep drilling and indeed there is significant upside optionality across the entire area...
...noting not only the exploration targets identified by $SFR.AX, but also that $SRT.AX ALSO has the same 2% NSR over all the Cobre tenements (which I assume will be folded into the Motheo tenement package, in time), as well:
How do you value this undefined - but likely substantial - reserve and development upside? I've taken a bit of a SWAG here and assumed another 300k of reserves at similar grades/payability/economics - but then used a much higher risking on that number (25%)...either way, you...
...still get a significant number, $13mm USD or about 12c a share:
Admittedly this last category is less precise but it is all pure upside at these prices. As $SFR.AX continues to drill, and - god forbid - if Cu prices go higher - the reserves amount will go up, prob a lot. Any number of royalty cos would love to own something like this...
...which brings me to the next point: capital structure and strategic value extraction.
$SRT.AX entity is current running a v high cost burden ->2mm GBP a year! - and suffers from a punitive cost of equity after the decision to delist from AIM last year.
$SRT.AX entity is current running a v high cost burden ->2mm GBP a year! - and suffers from a punitive cost of equity after the decision to delist from AIM last year.
Mgmt has hinted at selling the royalty, outright, and I believe this may happen - either via force from disgruntled shareholders or otherwise - given language like this in a recent PR:
Moreover in this presentation management suggested something strategic re value creation would likely be announced soon (tho I have no idea what) - monetizing the royalty would make most sense, I believe:
Obviously, $SFR.AX is a multi-bn producer w/ ample resources to either buyback the royalty; or acquire Cobre, and the royalties over both the $SFR.AX land and Cobre land, at the same time.
This would leave $SRT.AX as a pure investment holding company and give a ton of cash...
This would leave $SRT.AX as a pure investment holding company and give a ton of cash...
...to reinvest. It seems at least a credible outcome, in any strategic reorganization of the portfolio.
Alternately, it is worth remembering the register is pretty open, and some large-ticket individual investors (Michael Joseph etc) have been long-suffering:
Alternately, it is worth remembering the register is pretty open, and some large-ticket individual investors (Michael Joseph etc) have been long-suffering:
That's about it really. If I had my way I would market the royalty and get back 1.5-2x the share price there alone; then figure out what to do w/ the rest of the portfolio. But if you're bullish copper and don't mind illiquidity, it seems pretty interesting π€π€
As always, DYODD. This is v cheap but small, illiquid, and volatile. This is mostly an intellectual curiosity for me (despite owning 3mm shares) given the size of my account, as mentioned.
GLTA. $SRT.AX ππ
GLTA. $SRT.AX ππ
β’ β’ β’
Missing some Tweet in this thread? You can try to
force a refresh
γ
