STRATEGIC MINERALS PLC

 

STRATEGIC REPORT

FOR THE YEAR ENDED 31 DECEMBER 2021

 

The Directors of the Company and its subsidiaries (which together comprise the Group) present their Strategic Report on the Group for the year ended 31 December 2021.

Financial Performance

The Company and the Group's reporting currency is US dollars reflecting that, previously, the Group's revenues, expenses, assets and liabilities were predominately in US currency and, currently, the bulk of revenues continue to be sourced in US dollars.

The Group recorded a profit before tax of $0.257m (2020: $0.450m) despite a dip in Cobre magnetite sales in the last quarter.

 

Throughout 2021, despite changes in the market environment from the global pandemic, the Company was able to continue Cobre operations, largely without impact. During 2021, the Company's wholly owned subsidiary, Southern Minerals Group ("SMG") received a $0.050m non-refundable Covid 19 related US government grant (2020: $0.046m) to assist with payroll expenses. See Note 6 for further information in relation to this grant.

The Board continued to maintain tight discipline on Group overheads with 2021 seeing another 7% reduction ($0.127m) to $1.745m compared to $1.872m in 2020. The Board and management continue their policy to ensure overheads and administration costs are appropriately in line with cash flows from operations. These group overheads reflected both reduced remuneration and reduced activity associated with the global pandemic.

SMG incurred a tax expense of $0.101m (2020: $0.236m) for the year. The lower level of taxation in 2021 reflected SMG's capacity to write off, for tax purposes, its acquisition of a new loader purchased during the year. However, the remainder of the Group continues to generate tax losses.

With the extremes of the pandemic behind it and repayment of the CRL acquisition debt made, the Company invested more heavily in moving both the Leigh Creek Copper Mine and Redmoor Tin and Tungsten projects forward. In 2021, the Company invested $1.152m in such activities (2020: $0.558m). 

In order to finance the development of the Company's projects, and to assist in working capital requirements associated with the Company's involvement in the Deep Digital Cornwall programme, the Company undertook an equity raise in October 2021, which netted $0.523m after fees.

Cash at the end of the year was $0.611m (2020: $0.833m).

PROJECT REVIEW AND ACTIVITIES

Cobre Performance

 

In 2021, Cobre sales dipped in the final quarter and, subsequently, recovered from February 2022. Despite this, 2021 continued to be a profitable year for domestic sales with a total of 42,637 short wet tons of magnetite being sold which resulted in gross sales of $2.611m compared to 2020 when 51,518 short wet tons were sold for $3.025m.

With the continuation of the global pandemic, contactless operating practices at Cobre were maintained further reflecting the excellent efforts of the SMG team in maintaining operations, and cashflow, during this critical period in the Company's history. Close monitoring of operations continues to ensure adequate service to customers and safe operating conditions.

During the year, SMG completed the acquisition of a new loader and following is a photo of the loader and the SMG team taken by Clovis Hooper, the President of SMG.

(Diagram to be found on the Company's website at https://www.strategicminerals.net/investors/reports-and-circulars.html )

 

 

The Receiver for CV Investments LLC, appointed by the US Securities and Exchange Commission, undertook extensive enquiries and legal action throughout the year and has identified more than US $8m in fungible assets. As a result of these efforts, the Receiver approached the court to establish a Bar Date of 25 April 2022 for claims to be finalised. It is expected, this is a precursor to the Receiver making a distribution to claimants in 2022. However, the Receiver has not, yet, confirmed how they will treat SMG's arbitrated claim for US $21.9m with respect to both quantum and ranking. Accordingly, the Company has made no allowance for such income in the 2021 accounts or in its 2022 cash flow forecast.   

For several years, Clovis Hooper, the President of SMG, and John Peters, the Managing Director of Strategic Minerals plc, have sought to secure extended access to the Cobre magnetite stockpile beyond an annual roll over. In March 2022, Mr Hooper's and Mr Peters' efforts were finally rewarded with the mine owner granting exclusive access to SMG until March 2027. The Company has sought this for some time as it assists in the Company's continuity of business and provides a framework in which SMG can guarantee multi-year resource supply. It is considered this enhances the potential to increase sales at Cobre.

SMG continues to have an exemplary safety record and has developed an enviable culture that reinforces the highest of safety standards.

Leigh Creek Copper Mine Pty Ltd ("LCCM")

In 2017, the Company identified a need for a second near-term income stream. In line with its strategy to seek out projects that were exposed to minerals and metals believed to benefit from perceived demand and supply imbalances, the Company identified the LCCM project, a historically mined copper oxide deposit. Since acquiring the project in 2018, the Company has invested in a temporary restart of operations to test existing operating capacity and in preparing and submitting a Programme for Environmental Protection and Rehabilitation ("PEPR") in relation to its Paltridge North deposit.

During this year, LCCM obtained a conditional copper oxide PEPR approval. Since this time, the Company has sought to address the conditions attached to the copper oxide PEPR expecting a full restart in 2022, subject to finance. Upon unconditional sign off of the current PEPR, a new "cloned" PEPR will be sought to encompass transitional sulphide ores expected at the base of the Paltridge North open pit. These represent about a third of the copper expected to be sold at Paltridge North and it is not expected to be encountered for more than one year. A further PEPR will be required for the proposed future mining of the Lynda/Lorna Doone deposits and work on this is expected to be undertaken during the mining and processing of ore from Paltridge North.  The cost and expected timing of these have been incorporated into the Company's financial modelling of the project.

LCCM has three approved Mining Leases that cover a number of copper oxide deposits, including Lorna Doone, Lynda, Mountain of Light (Rosmann East and Paltridge North) and the Mount Coffin deposit. All the Mineral Resources are contained within the Mining Leases. They contain a JORC 2012 total resource of 3.61mt @ 0.69% copper for 24,900 of copper metal forms the base of the project and includes the following Resource category breakdown.

	Inferred		Indicated		Total Resource
Deposit	Tonnes	Copper Grade	Tonnes	Copper Grade	Tonnes	Copper Grade	Copper Metal (tonnes)
Paltridge North	41,000	0.49%	879,000	0.82%	920,000	0.81%	7,400
Lynda	-	-	1,349,000	0.65%	1,349,000	0.65%	8,800
Lorna Doone	66,000	0.68%	1,280,000	0.65%	1,346,000	0.65%	8,700
Total	107,000	0.61%	3,508,000	0.69%	3,615,000	0.69%	24,900

 

An existing heap leach and Kennecott cone-based copper processing facility is located at the Mountain of Light deposit (adjacent to Rosmann East and nearby Paltridge North) and was successfully operated for a short period in 2019 to test its capacity to resume full time operations.

(Diagram to be found on the Company's website at https://www.strategicminerals.net/investors/reports-and-circulars.html)

The region around the LCCM project has excellent infrastructure with a modern town (Leigh Creek), sealed airstrip, sealed and all-weather roads, power and water utilities.

(Diagram to be found on the Company's website at https://www.strategicminerals.net/investors/reports-and-circulars.html)

In addition to the Mining Leases, two approved Exploration Leases, covering an area of 686km² in the northern Flinders Ranges, are included in the project. These provide excellent opportunities for exploration of new copper oxide resources.

The underlying demand and supply factors for copper, that formed the cornerstone of the Board's decision to invest in LCCM, began to be widely recognised in the market during 2021. This was reflected in the average copper price in 2021 increasing 27%. Given that the acquisition of LCCM was based on a copper price of USD $3-00 lb, the current copper price of over USD $4-00 lb has significantly improved the underlying valuation of LCCM as detailed in the Company's RNS of 9 November 2020.

The Board continues to consider that the Company's share price does not fully reflect its underlying asset values. Accordingly, in order to progress the Leigh Creek Copper Mine project, funding at the asset level is being sought.

In 2022, the Company plans to work on receiving an unconditional PEPR for the Paltridge North oxides, submit a PEPR for the Paltridge North transitional sulphide ores, secure external funding/joint venturing of the project and re-commence production at Paltridge North.  

Cornwall Resources Limited - Redmoor Tin and Tungsten Project

After having become a 50% owner in the Redmoor Tin and Tungsten Project in 2016, SML moved to full control of Cornwall Resources Limited ("CRL"), the holder of Project, in 2019. The move to acquire the balance of CRL was based on the Board's perception of the value of the acquisition and its concern that the then current joint venture partner would not have the resources to continue forward movement with the project in a timely manner.

(Diagram to be found on the Company's website at https://www.strategicminerals.net/investors/reports-and-circulars.html)

This 2019 resource update demonstrated that the overall JORC (2012) inferred resource had increased from the previously assessed 4.5m tonnes at a tin equivalent ("SnEq") of 1.00% to 11.7m tonnes at 1.17% SnEq. The result was a 200% increase in contained metal, 160% in resource tonnes and a 0.17% rise in the tin equivalent grade.

Not only has the resource been significantly expanded but, as shown in the diagram following, the mineralisation has been discovered in discrete locations giving rise to the ability to tailor mining and processing to preferred mineralisation at the time of extraction.

(Diagram to be found on the Company's website at https://www.strategicminerals.net/investors/reports-and-circulars.html)

During 2021, CRL concentrated on the role it played in the Deep Digital Cornwall ("DDC") programme undertaken by Cambourne School of Mines. In this programme, the Redmoor exploration licence area was, and currently continues to, be used as a field laboratory for collection of geochemical and geophysical data, which also provided CRL with information relevant to a number of new prospects within its Mineral Rights. This work was largely (80%) funded by a grant, although timing of payment claims has impacted working capital.

Prior to commencing the DDC work, an initial historic review of parts of CRL's mineral resource area identified multiple prospective targets for tin and copper to the west of the Redmoor deposit (shown in the following map as Target Tip Valley). This included historic drill intercepts report up to 1.26% tin over 2.55 m in core, and 0.23% tin in percussion samples. 

[Diagram to be found on the Company's website at https://www.strategicminerals.net/investors/reports-and-circulars.html ]

In February 2021, CRL commenced a trenching and auger exploration programme aimed at testing the area to the west of its existing drilled resource. The sampling of material from this programme was undertaken in three stages;

1)       10m spaced auger sampling (117 samples).

2)       Excavation of three trenches, which were then channel sampled and analysed (84 samples).

3)       Additional 1m spaced auger sampling, where topographic constraints meant that safe access for mechanical excavation of trenches was not possible (81 samples).

Three of the anomalies identified by the auger sampling were followed up by the excavation of three trenches, totalling 169m in length, to a depth of 1m. CRL's geologists sampled the trench wall material as channel samples, typically as 2m intervals. Samples were analysed by ALS Loughrea using method ME-MS89L.

A 20m wide zone, that includes values significantly anomalous for tin, was identified in trench CRT01. This zone is shown, as 2m sample intervals, in the following table.

Trench	Sample no.	From (m)	To (m)	Interval (m)	Sn %	Cu %	W %
CRT01	CRL004411	4.00	6.00	2.00	0.17	0.01	0.00
CRT01	CRL004410	6.00	8.00	2.00	0.03	0.01	0.00
CRT01	CRL004409	8.00	10.00	2.00	0.38	0.01	0.00
CRT01	CRL004408	10.00	12.00	2.00	0.01	0.01	0.00
CRT01	CRL004407	12.00	14.00	2.00	0.03	0.01	0.00
CRT01	CRL004406	14.00	16.00	2.00	0.02	0.01	0.00
CRT01	CRL004405	16.00	18.00	2.00	0.02	0.01	0.00
CRT01	CRL004404	18.00	20.00	2.00	0.27	0.01	0.00
CRT01	CRL004403	20.00	22.00	2.00	0.37	0.01	0.00
CRT01	CRL004402	22.00	24.00	2.00	0.06	0.01	0.00

The other two trenches, CRT02 and CRT03, did not show significant tin, copper, or tungsten grades; however anomalous levels of pathfinder elements were seen, which may indicate the presence of a mineralising system.

Close-spaced auger sampling was undertaken to test the fourth auger anomaly. This target could not be tested by mechanical backhoe due to steep topography associated with its location on the edge of the Target Tip Valley. CRL believes this area represents an extension of the sheeted vein system that hosts the resource at Redmoor.

Auger samples were taken at a 1m spacing from an average depth of 50cm using a Stihl powered auger. These samples identified unexpectedly high tin grades, and local elevated tungsten values.  The work identified a widespread anomalous level of tin across the north flank of the Target Tip Valley, defining a 60m long anomaly greater than 1,000 ppm (0.1%) tin, and with peak value of 0.87% tin. Tungsten featured a peak value of 0.20%. These results are shown in the following table:

Traverse	Sample no.	East	North	RL m	Sn %	Cu %	W %
Traverse 1	CRL003731	234883.61	70618.87	113.26	0.35	0.03	0.04
Traverse 1	CRL003732	234883.15	70619.68	113.49	0.56	0.05	0.06
Traverse 1	CRL003733	234882.75	70620.45	113.78	0.87	0.05	0.08
Traverse 1	CRL003734	234882.38	70621.33	114.10	0.70	0.05	0.06
Traverse 1	CRL003735	234881.95	70622.21	114.45	0.44	0.05	0.20

 

The high tin levels identified were followed up by hand-pitting. Two sites with peak values were excavated, to verify the soil profile and seek any evidence of disturbed ground or surface contamination. CRL's geologists observed the presence of decomposed shale, believed in-situ, with blocky vein-style quartz fragments containing clasts of wall-rock, in the pit base. Strike extensions from this location align with a man-made cutting in the hillside, interpreted by CRL as past small-scale open-cut mining.

Following on from the close-spaced auger sampling, CRL conducted a short program of hand-excavated pits to verify the geology ahead of potential future drilling. Two pits were excavated, and both were channel sampled. Hand pitting was utilised due to steep terrain. Four samples were taken which were analysed by ALS Laboratories Loughrea using method ME-MS89L.

Pit	Sample no.	From (m)	To (m)	Interval (m)	Sn %	Cu %	W %
CRT04	CRL003618	0.00	1.00	1.00	0.68	0.03	0.05
CRT04	CRL003619	1.00	2.00	1.00	0.27	0.06	0.03
CRT04	CRL003620	2.00	2.60	0.60	0.43	0.04	0.04
CRT05	CRL003621	0.00	1.00	1.00	0.17	0.04	0.01

 

The pits contain decomposed shale, with blocky vein-style quartz fragments containing clasts of wall-rock, in the pit base. The results above confirm the presence of in-situ mineralisation, which is considered by CRL to constitute a strong tin exploration target. The CRT04 result with a 2.6m interval averaging 0.46% tin, 0.04% copper and 0.04% tungsten, is a clear example of mineralisation near-surface.

On the back of this work, CRL has submitted an application for a General Permitted Development Order ("GPDO") planning authorization from Cornwall Council for a potential drill programme at Redmoor, to the west of the current resource. This is aimed at identifying near surface tin and to test this highly prospective target's depth. Exploration of this tin target and adjacent areas, is intended to verify the projected westward continuation of the Redmoor Sheeted Vein System (SVS) orebody. If confirmed, this has the potential to significantly increase the proportion of tin, and total tonnage of a future resource. The proximity of the exploration area to surface is likely to further enhance project economics. 

While Management and the Board recognised, early, the strategic importance of the Cornish mining area, it was during 2021 that the UK listing of Cornish Metals and the AIM IPO of Tungsten West highlighted to the market the region's potential. The success of both listings and increased government focus on critical minerals, such as tin and tungsten, highlighted the potential of mineral resources in the South West of the UK.

The Board and Management considers that CRL holds a significant asset at a time when the regional potential of the area and its recent extension of the exploration licence, until 2037, provides the time to develop this fully to the best benefit of shareholders. 

Increases in commodity prices, notably tin and copper, have impacted very positively on the economics of the Redmoor project. This, combined with the world class standing of the Redmoor deposit, augurs well for valuation in the future. In the Company's last Redmoor scoping study report, October 2020, commodity prices used were Tin $22,000 a ton (currently $43,000 a tonne), Tungsten $30,000 a ton (currently $33,000 MTU) and Copper $3.18 lb (currently $4.73). Accordingly, internal analysis shows a significant increase upon the previously reported after tax NPV @ 8% of $91m and the IRR of 23.4%.

As the Board considers that the Company's market share price is greatly undervalued, they are seeking a joint venture partner to progress the Redmoor project.

In 2022, the Company anticipates completing the Deep Digital Cornwall work, undertaking further drilling at Redmoor, to test the western extension/near surface tin identified in the trenching and augur work conducted in 2021. At the same time, the Company will continue discussions with third parties about involvement in the development of Redmoor.

Central Australia Rare Earth Pty Ltd ("CARE") Tenements

During 2021, the Company has released all its CARE tenements back to the Western Australian State government.

Safety

The Company is pleased to report that, during 2021, there were no safety incidents (2020: nil) across its operations in United States, England, and Australia.

Board and Management Changes

There has been no change to the composition of the Board during 2021 and the current Board does not currently envisage a need for change. Management changes have been made in line with normal operations although all such changes are based around consultancy, rather than direct employment contracts.

Key Risks and Uncertainties

The management of the business and the execution of the Group's strategy are subject to a number of risks. Strategic Minerals regularly reviews the principal risks that face the business and assesses appropriate responses to mitigate and, where possible, eliminate potential adverse impact. There is the possibility that if more than one event occurs, that the overall effect of such events would compound the possible adverse effects on the Group.

Our principal risks and uncertainties are as follows: 

Commodity prices and currency risk

Although the Group's main income stream at Cobre is focused on localised markets, which minimises the impact of global commodity prices, the value of its development projects is subject to changes in global commodity prices. Fluctuations in commodity markets are affected by numerous factors beyond the Group's control, including global demand and supply, international economic trends, currency exchange fluctuations, expectations for inflation, speculative activity, consumption patterns and global or regional political events. In addition, the COVID-19 pandemic has increased price volatility. The aggregate effect of these factors is impossible to predict. Fluctuations in commodity prices, over the long term, may adversely impact the returns of the Group's investments. The Group monitors commodity prices and structures its portfolio of assets with commodities that are likely to appreciate in the medium to long term. During early 2020, the onslaught of the COVID-19 pandemic saw commodity prices hit hard, although its impact on the valuation of projects was partly offset by associated currency movements. Since this time, commodity prices associated with our major development assets have rebounded and are now significantly higher than prior to the commencement of the pandemic.

The Group reports its results in US Dollars, whilst the functional currency of the parent company from which the Group derives the majority of its funding is Pound Sterling. This may result in additions to the Group's reported costs. Fluctuations in exchange rates between currencies in which the Group invest, reports, or derives income may cause fluctuations in its financial results that are not necessarily related to the Group's underlying operations. The Group converts funds to a currency in which funds will be utilised on an as needed basis. The COVID-19 pandemic has seen greater volatility in exchange rates, but these have now reverted to levels used in the Company's financial evaluations.

Funding risk

Strategic Minerals needs funds, both to manage its working capital requirements and fund new and existing projects, as the Company seeks to grow. If the Company is not able to obtain sufficient financial resources, it may not be able to develop new and existing projects. There can be no assurance that such funds will continue to be available on reasonable terms, or at all in the future. The Directors regularly review cash flow expenditure requirements and the cash flow generated from its Cobre operation to ensure the Group can meet financial obligations as and when they fall due. COVID-19 has placed additional risk around the ability of the Group to access capital and debt markets. To date, the Company has been able to raise funds when needed but has had to alter timing to suit market sentiment.

Reserve and resource risk

The Mineral reserve and resource relating to CRL and LCCM are only estimates and no assurance can be given that the estimated reserves and resources will be recovered or that they will be recovered at the rates estimated. Reserve and resource estimates are based on sampling and, consequently, are uncertain because the samples may not be representative. Reserve and resource estimates may require revision (up or down) based on future actual production experience. The discovery of mineral deposits is dependent upon a number of factors including the technical skill of the exploration personnel involved.

The commercial viability of a mineral deposit, once discovered, is also dependent upon a number of factors, including the size, grade and proximity to infrastructure, metal prices and government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. There can be no guarantee that a mineral deposit will be economically viable. The Group undertakes studies in order to mitigate this risk.

License and Permitting risk

The exploration, developing and mining of resources is, usually, governed by licensing and permitting requirements issued, generally, by governments. These normally cover limited periods and risk may be attached to whether governments permit these periods to be extended or institute "new" conditions on their usage. While this is true for all resource projects it has significant application to SML's two, pre-production assets, namely;

a)   LCCM - The PEPR permitting process provides risk, both to costs and timing of projects. While the unconditional PEPR for mining copper oxide material from Paltridge North is considered imminent, at the time of writing, there remains the need to vary this to encapsulate the transitional ore expected at the bottom of the planned Paltridge North pit along with the need for a PEPR for the Lynda/Lorna Doone deposits. Allowance for these undertakings is reflected in our internal plans and valuations but it is acknowledged that risks to the overall projects value may arise from variations to expectations around the granting of these PEPRs.

b)   Redmoor - As the planned Redmoor Tin and Tungsten project is not as advanced as LCCM, its progress is still dependent on obtaining and maintaining appropriate approvals. Ultimately, a mining license will need to be obtained. However, for the present, the principal focus is in obtaining drilling approval to prove up resources. The timing of such approvals may impact the effective valuation of such assets.

Customer risk

The level of profitability of the Group is currently dependant on the performance of the Company's Cobre operation in the United States. The Cobre operation has a number of major customers and should one or more of these customers choose to not to purchase product it may have a substantial impact on the performance of the Group. The Group continues to look for additional customers at Cobre to address this risk and in addition will develop other projects such as Leigh Creek Copper Mine to reduce the risk of dependence on any one customer.

Operational and Environmental risk

Mining operations are subject to hazards normally encountered in exploration, development, and production. These include unexpected geological formations, rock falls, flooding, dam wall failure and other incidents or conditions which could result in damage to plant or equipment, people, or the environment and which could impact any future production throughput. Although it is intended to take adequate precautions to minimise risk, there is a possibility of a material adverse impact on the Group's operations and its financial results. The Group will develop and maintain policies appropriate to the stage of development of its various projects. In 2020, as a safeguard to both our clients and staff, amendments were made to operational procedures to ensure that delivery of material was contactless. These procedures have continued in 2021.

Strategic risk

Significant and increasing competition exists for mineral acquisition opportunities throughout the world. As a result of this competition, the Group may be unable to acquire rights to exploit additional revenue generative assets such as Cobre and attractive mining development properties such as CRL and LCCM on terms it considers acceptable. Accordingly, there can be no assurance that the Group will acquire any interest in additional operations that would yield reserves or result in commercial mining operations. The Group expects to undertake sufficient due diligence to help ensure opportunities are subjected to proper evaluation.

Uninsurable risk

The Group may become subject to liability for accidents, pollution, and other hazards against which it cannot insure or against which it may elect not to insure because of prohibitive premium costs or for other reasons, such as amounts which exceed policy limits.

Product risk

The Group has a contract for access to magnetite iron ore at the Cobre operation until March 2027. There is a risk that the supplier may terminate the agreement, after this time, in which case the Group would no longer have product to sell. The Group's proactive approach in securing access for the next five years has minimised the impact this risk may have on future operations and the Group's management actively engages with its supplier throughout the year to proactively address any concerns that the supplier may raise.

An off-take arrangement is in place for the LCCM project which is subject to minimum product specifications. During 2019 the company was able to produce at specification material in its retreatment of heaps thereby substantially reducing the product specification risk.

Dependence on key personnel risk

The Group and Company are dependent upon the executive and local management teams. Whilst it has entered into contractual agreements with the aim of securing the services of these personnel, the retention of their services cannot be guaranteed. The development and success of the Group depends on the Company's ability to recruit and retain high quality and experienced staff. The loss of the service of key personnel or the inability to attract additional qualified personnel as the Group grows could have an adverse effect on future business and financial conditions. The Group incentivises executives and management with market-based remuneration packages, short term and long-term incentive schemes.

Climate Change Risk

While climate change considerations can seriously impact resource companies, the Company considers that there is little downside risk from these considerations, given the metals and minerals in its portfolio, and that these climate change considerations are likely to impact positively on commodity prices for both copper and tin.

Coronavirus Pandemic Risk

While the implications of the COVID-19 pandemic appear to be mitigating, it remains difficult to predict its future impact given the evolving nature of this issue and the varying reactions of governments around the world. The Board and management are continually reviewing the potential implications and undertakes contingency planning reviewing actions it may take to mitigate the risk. At the Company's Cobre operation, the Company continues to implement a policy whereby drivers of trucks picking up material do not exit the vehicle on site and screens have been put up for the transfer of documents to protect staff. The working at home policy introduced in 2019 continues, at the Company's operations in the United Kingdom and Australia, in line with those country requirements. The Company continues to actively talk with advisors and potential partners to move the Company's projects forward, although this is predominately being undertaken remotely.

Potential War Risk

Post balance sheet date, the Russian invasion of the Ukraine has raised the possibility of a global conflict.  To date, these actions have, generally, positively impacted on resource prices relevant to SML.  However, there is risk, increased by the Ukrainian developments, that global economic growth may be severely curtailed, and this would, ultimately, have a negative impact on the demand for resources.

Key Performance Indicators

The Board monitors the activities and performance of the Group on a regular basis.  The principal KPI's monitored by the Company are domestic sales of product from Cobre, the cash position of the Group, the investment in project activities, the share price of the Company and the health, safety and environmental incidents of the Group. 

The sales of domestic product at Cobre dipped in the fourth quarter and began to recover in February 2022.  This was thought to reflect a rundown of a stockpile our largest client had built up at their plant.  Despite this, sales in 2021 were lower than last year but a healthy $2,611m (2020: $3.025m).

The unrestricted cash position of the group as of 31 December 2021 was $0.611m which decreased from $0.833m from the previous year. This drop in cash reflects the operating profit generated during the year, less the investments made into the LCCM and Redmoor projects and the capital raise undertaken during the year, detailed in the Group Statement of Cash Flows.

The share price of the Company at year end was 0.30p (2020: 0.40p).  Directors have indicated their confidence in the future performance of the Company through on market acquisition of shares.

The group did not have any health and safety or environmental incidents during the year. (2020: nil)

Strategy

In early 2016, the Company adopted a strategy emphasising both an operating and investment strategy which is continued today.

The Operating Strategy is centred on maintaining and improving cash flows from the Company's magnetite stockpile at the Cobre mine in New Mexico, USA, whilst also limiting corporate overheads in line with this profitability, thus ensuring operating self-sufficiency.

The investment strategy is built around investment in projects that relate to metals expected to increase in demand and price over the medium term.

The Company is well positioned to execute its plans to restart full LCCM production, subject to clearance of PEPR conditions and sourcing funding, and commencing a Pre-Feasibility Study at Redmoor.

Outlook and Prospects

The Company continues to maintain controls on its overheads, is focused on restarting production at Leigh Creek in 2022, securing and expanding Cobre's profitable domestic sales and developing the Redmoor Tin and Tungsten mine.

The Board is confident that the outlook for the Company is encouraging having weathered testing times in both 2020 and 2021. The Company is actively pursuing non-dilutive funding approaches, both joint venture and debt style, to progress both LCCM and Redmoor. The low holding cost of these projects, the low level of debt in the Company and the now reinforced cash flow stream from Cobre, provides the Company the flexibility, when considering financing options, to extract maximum value from these investments.

Current expectations are that funding for LCCM can be sourced around/in line with the meeting of the conditions associated with PEPR granted in July 2021, and that production can commence in 2022. Regarding the Redmoor project, expected time frames here are longer with the next goal being the preparation of a pre-feasibility study to be followed by a bankable feasibility study. This is expected to take 4 to 5 years to complete both.

The robust performance of commodity prices, notably Copper and Tin, have provided some optimism for the Company, significantly improving underlying valuations on the Company's assets. While COVID-19 continues to impact our developmental operations, the Board considers that the impact is likely to dissipate this year. A more detailed analysis of the impact of COVID-19 is include as part of the corporate governance statement.

Directors' section 172 statement

Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders and other matters in their decision making. The Directors continue to have regard to the interests of the Company's employees and other stakeholders, the impact of its activities on the community, the environment and the Company's reputation for good business conduct, when making decisions. In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success of the Company for its members in the long term. We explain in this annual report, and referenced below, how the Board engages with stakeholders.

Likely consequence of any decision in the long term

The Chairman's Statement, Strategic Report Business Strategy and the Corporate Governance Statement set out the Company's long-term rationale and strategy.

Interests of employees

The Employee section of the Company's Corporate Governance Statement sets out the Company's approach to the interests of its employees.

Foster business relationships with suppliers, customers and others

The Company's approach to business relationships with stakeholders and shareholders are set out in the Company's Corporate Governance Statement.  

Community and environment

The Company's approach to the community is set out in the Corporate Governance Statement.

Maintain high standards of business conduct

The Corporate Governance Statement sets out the Board and Committee structures and extensive Board and Committee meetings held during 2021, together with the experience of executive management and the Board and the Company's policies and procedures.

Act fairly between shareholders

The Corporate Governance Statement sets out the process the Company follows to ensure it all shareholder interests are preserved and enhanced.

Principal Decisions made by the Board

We define principal decisions as both those that have long-term strategic impact and are material to the Group, but also those that are significant to our key stakeholder groups. In making the following principal decisions, the Board considered the outcome from its stakeholder engagement, the need to maintain a reputation for high standards of business conduct and the need to act fairly between the members of the Company:

(a)      Commitment to creation of a second income stream at Leigh Creek

The Board considers the creation of a second income stream to the Company, particularly where the asset is owned and controlled by the Company, of extremely strategic importance to the Company.  However, given the deterioration in the Company's share price, it has taken the strategic view that the progress of the Leigh Creek Copper Mine into production needs to be funded at the asset level either by debt or equity.  Accordingly, the Board and Management have concentrated efforts in sourcing funding in parallel to the PEPR approval process.

      (b)       Debt management

Apart from lease liabilities associated with funding equipment at SMG, the Board has repaid all debts and, at present, does not wish to place a commitment of this nature on its balance sheet, despite the recent extension of access to operations at Cobre. 

(c)       Progression of Redmoor Tin and Tungsten Project

The Board continues to focus its attention on securing an appropriately resourced joint venture partner that could assist the Company to progress the Redmoor project to the completion of a bankable feasibility study. In so doing, the Board considered that:

i)      The Company should access strategic marketing guidance in securing a suitable joint venture partner. Accordingly, the Company employed NRG Capital to assist in locating and marketing to suitable, potential joint venture partners and this continued into 2021.

ii)     In order to ensure that cash funding requirements were minimised, the Company accepted that it may, ultimately, retain less than a controlling interest in the project.

(d)     Limiting of Equity Raises in Line with Investment in Value Added Project Progression

The Board has adopted a policy of seeking to limit Strategic Minerals plc's capital raisings, and hence shareholder dilution, as much as possible and to, generally, ensure that the bulk of funds raised are for value added purposes/projects. In line with this approach, the SML Board undertook a capital raise which netted $0.523m after fees to fund works to achieve unconditional LCCM PEPR approval and provide working capital for the Deep Digital Cornwall ("DDC") project.

(e)    Commitment to funding operating costs from Cobre cash flows

The Board has adopted a long running strategic objective to maintain corporate overheads within after tax cash flow generated from its Cobre operations. In this manner, any dilutive equity issues are directed at, potentially, value accretive investments to progress projects.

In making the above principal decisions, the Directors believe that they have considered all relevant stakeholders, potential impact and conflicts, the Company's business model and its long-term strategic objectives, and have acted accordingly to promote the success of the Company for the benefit of its members as a whole.

The Strategic Report was approved and authorised for issue by the Board of Directors and was signed on its behalf by:

 

 

 

John Peters

Managing Director

06 June 2022.