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Stratmin Global Resources--First Mover Advantage GRAPHMADA: MADAGASCAR LICENCE AREAS Graphmada hold 3 licence areas of similar size and similar characteristics of graphite mineralisation. Licenses are of 40 years' duration. LOHARANO 1 and 2 are located in Taomasina province and both have mining licences. ANTSIRABE is in Antananarivo province and has an exploration licence. LOHARANO 1 is being developed first. CHARACTERISTICS/LOCATION OF LOHARANO 1 Loharano 1 is located near Brickaville, which is close to the RN2 linking Antananarivo (M capital) to Taomasina (M's major port). The mine is 80km from the port. The Graphmada processing plant utilises conventional crushing and screening processes, and then a flotation circuit to beneficiate the raw graphite ore into high grade graphite concentrate of >93% purity. The finished product will be transported by road to Taomasina and containerised for export. The resource is large flake, crystalline, high purity graphite. The resource is at low elevation, near surface, consequently low overburden and low strip ratio. There are no environmental issues. All in all the conditions for low cost mining and shipping could scarcely be better, which should maximize the margins achievable. GRAPHMADA: VALUATION 1. Loharano 1 Assumptions - Loharano 1 production rate of 12,000 tpa - Market price for high quality, flake graphite is c. US $2000/t - $3000/t, say $2,500/t - Exchange rate 1.6 $/£ - "Graphmada believes it is in an excellent position to penetrate the flake graphite market characterised by high margins and limited competition." For this purpose will guesstimate 'high margin' as 50%. - Graphmada is a high growth company, but will use a conservative PE of 10. - Tax rate of up to 22% (but reduced/negotiable for early stage mines) will be ignored. Gross revenue pa = 12,000 x £2,500 / 1.6 = £18.6m Earnings (EBITDA) = £18.6 x .5 = £9.3m PE of 10 gives mkt cap of £93m Value of Stratmin’s ca 20% stake so our share is ca £19m Current Stratmin mkt cap = 5.5p x 90,299,977 = £5m So Loharano 1 alone justifies Stratmin sp of 19/5 x 5.5p = 20.9p 2. Loharano 2 is probably close to Loharano 1 and will share some of its mineability characteristics, infrastructure etc. It also has a mining licence, which would need the equivalent of a feasibility study to be granted (even in Madagascar!) imo. However it will still need to go through the stages of JORC, mine development and plant building. Believe Loharano 1 took 6 years to begin producing (quote from OVM website), although 2nd time around with all the Loharano experience will surely be much quicker, say 2 years. All of these stages cost money, so until we know more the value of Loharano 2 is taken as 30% of Loharano 1. 3. Antsirabe has only an exploration licence. It is claimed to have a similar quantity/quality of resource, so we may assume that some exploration/drilling has been done, but the details of infrastructure are unknown at this stage and it is evidently further from the port. So I propose a value for Antsirabe of 15% of that of Loharano 1. Taking 2 and 3 together that would uplift value by 45%. 20.9p x 1.45 = £30.3p 4. Based on the frequently quoted ‘initial’ stake of 15% Stratmin could increase its stake in Graphmada to say 30%. The dream scenario would be is that further investment would be on the same terms as the initial investment, but perhaps that had better remain a dream for now. Suppose that another 10% investment could be made at double the original stake price (the original 15% cost $1.275m = £800k). The additional 10% would cost £800k x 2 x 10/15 = £1.07 m. (As it happens, after the last placing, Stratmin should have about £900k in the bank.) This supposed further subscription would raise the value by 50% to 45p. 5 There is potential further value associated with bringing Graphmada to listing. Firstly, it is believed that the Convertibles allow Stratmin to buy Graphmada stock on listing at a discount to the float price. Secondly, the effort and costs that Stratmin will incur to enable the listing will need to be rewarded in some way. Thirdly, listing will allow Stratmin the ‘opportunity benefit’ of cashing in a proportion of their holding for use elsewhere. It seems that a minimum value of 5p per share should be added to take account of these advantages, which rounds up the valuation to: 50p per share Possible. Current Price 5.25p 05/10/2012 | ||||||||||||||
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