Strandline Resources Coburn Project
We have a rare offer in Strandline Resources privately placed USD senior secured notes (parri passu with NAIF facility). Bonds are offered at AUD107.74, providing a 10% YTC (20-Dec-23 call at AUD104.80 plus accrued).
Note: STA equity is up 68% since the bond was first issued.
Our base case expectation of an early call is supported by progress on the Coburn Mineral Sands project, which is now approximately 63% complete. Unlike some projects in Western Australia that do not have fixed priced contracts, Coburn remains on budget and on time − the project is on track for first production in Q4 2022.
Therefore, once the business pivots from the construction phase to the production phase, the desk expects the early call to be exercised as cheaper debt capital will be available to a cash flow generative producer.
Moreover, the recent AUD50m equity raise has reduced risk to bondholders and highlighted the capital market support available to Strandline.
With Coburn now just roughly six months away from first production, the credit margin appears attractive versus comparable securities:
- Coronado 10.75% 15/05/26 at 7.40% YTM
- New MINRES 8.125% 4/10/2027 at 8.125% YTM (approx.)
- Pembroke 10% 21/12/28 at 9.75% YTM
Finally, if the issuer does not exercise the call in Dec-23, the bonds will begin to amortise to 50% of principal through to legal maturity 20/03/2026, adding further weight to the call but also protecting investors in the event of a non-call.