WHAT AN OFFTAKE CAN DO TO THE SHARE PRICE
It’s been nothing but good news for large-flake graphite production and exploration company StratMin Global Resources (LSE:STGR) this week.
The positivity began Tuesday when the London-based company announced a five-year offtake agreement with “one of world’s largest independent processors and merchants of graphite.” Signed October 16 and effective October 20, the agreement will see the buyer purchase “all the material that StratMin can produce within a pre-determined product specification.” The buyer will also have first option to buy all the other material StratMin produces.
In terms of pricing, StratMin’s press release states that it will be agreed upon “in advance and on a rolling basis” six months ahead of time. The set up will allow the parties to adjust prices based on open market changes.
So what?
The news is significant for a number of reasons. For one, according to Manoli Yannaghas, StratMin’s managing director, it makes StratMin not only the AIM’s first graphite producer, but also its first graphite supplier. What’s more important, however, is the fact that it gives the company “unfettered access to the graphite market.” As graphite market watchers are well aware, that’s key given that the metal isn’t sold on the open market.
Shareholders definitely seem to appreciate all of those factors. The company’s share price jumped from GBP4.65 at close of day Monday to as high as GBP8.40 on Tuesday — that’s an impressive 81-percent jump.
StratMin’s offtake agreement has also brought substantial analyst interest. Ticker Report notesthat on Wednesday Northland Securities upgraded the company to a “buy” rating and gave it a price target of GBP19.30. Northland Capital Partners did the same. Meanwhile, Beaufort Securities on Thursday reaffirmed its “speculative buy” rating for StratMin.
More good news
As mentioned, StratMin’s good fortune didn’t stop with Tuesday’s offtake agreement. On Thursday the company said it has identified “substantial surficial regolith-hosted graphite mineralisation” at the Mahefadok prospect at its Madagascar-based Loharano project. That might sound complicated, but as Yannaghas explains in a release, it essentially “demonstrates that there is clearly significant potential to find more graphite minerlisation at the project.”
Currently, the project has a JORC indicated and inferred resource of 5.7 million tonnes. The indicated resource sits at 421,000 tonnes at 5.15 percent, while the inferred resource totals 5,273,000 tonnes at 4.04 percent. In the past the company has expressed eagerness to boost those numbers, and Thursday’s news looks like a good step in that direction.
Investor takeaway
Investors may have been a little concerned about StratMin after it suspended regular production at Loharano back in June. Indeed, Proactive Investors UK quotes analyst Ryan Long as saying that it was “disappointing,” though necessary as it “allowed the firm to preserve cash while [this week's] offtake agreement was firmed up.”
However, the recent slew of good news appears to prove that the company knows what it is doing and will continue to see success moving forward. StratMin closed Thursday at GBP9.99 after jumping as high as GBP11.70 earlier in the day — 151 percent higher than Monday’s close — and will certainly be interesting to watch moving forward.