Strategic Minerals Regulatory News (SML)

31 March 2015

Strategic Minerals plc

("SML" or the "Company")

Share Option Agreement to acquire Tatu Coal Mine, North Island, New Zealand

and MoU signed for a coal project in China

Strategic Minerals plc (AIM: SML; USOTC: SMCDY) is pleased to announce that it has entered into:

1. a Share Purchase Agreement ("SPA") to acquire the Tatu thermal coal project in the North Island of New Zealand; and

2. a Memorandum of Understanding ("MoU") with Tao Nan City Wanbao Mining Power Ltd Co. ("TNCW") in relation to recommencement of the Wanbao coking coal mine in Jilian Province, China.

Highlights

Tatu Coal Mine, North Island, New Zealand ("Tatu")

· High quality thermal energy coal with a resource of 7.3 million tonnes

· Historical workings indicate average coal thickness of greater than 2 metres

· Conditional acquisition of 51%, with balance to be acquired subject to regulatory approvals and funding

· Total acquisition cost of NZ $255,000 (approximately £128,000), with the majority of remuneration payable by way of future royalty

· Production cash flows expected to commence within one year of full acquisition

· Planned production levels expected to be 200,000 tonne p.a. upon completion of the mine shaft

· Planning to service local energy coal market in New Zealand 

Wanbao Coal Mine, Jilin Province, China ("Wanbao")

· Culturally important signing of a letter of intent

· Six months exclusivity period for due diligence

· Coking coal mine situated in close proximity to two of China's largest steel mills

· Resource currently undergoing review

· SML to advise on recommencement of mine with a view to equity involvement

John Peters, Managing Director of Strategic Minerals plc, said "The Tatu acquisition meets all our investment criteria due to its near term (18 months to 24 months) cash flow potential, expected low capital requirement to commence operations, opportunity to competitively service local markets, potential resource upside and attractive IRR and payback targets. We look forward to identifying and acquiring similar resource projects.

The signing of the MoU for the Wanbao coking coal mine is a culturally significant step in developing Strategic Minerals' relationships in China and we look forward to working with the owners to review the project, recommend a commercially viable staged mining plan and develop a mutually agreeable equity participation proposal for Strategic Minerals in relation to the mine."

Tatu

a) Resource

Historical exploration reports indicate a resource of 7.3 million tonnes of coal with an average coal seam thickness greater than two (2) metres which has been based on outcrop at surface, seven (7) drill holes within 250 metres of the proposed new mine entrance, old workings and other coal outcrops in close proximity to the project. The heat value of the Tatu coal is expected to be ADB (air-dried basis) 24.43 MJ/kg (5,835 kcal/kg) and preliminary analysis shows the coal has similar or better coal characteristics to energy coal currently being imported to the North Island of New Zealand. SML looks forward to converting the historical resource estimate to a JORC resource as soon as practicable.

There has been more than 1,000,000 tonnes of coal produced from the historical Tatu mine which ceased production in 1971. The proposed re-opening of the mine will occur through new entry points starting at ground level and travelling almost horizontally underground. This is within the current mining permit comprising of 310 hectares, which expires on 13 March 2040. Initially, production volumes are expected to be around 200,000 tonnes per annum, upon completion of the mine shaft. Existing access roads to the mine have been established by the vendor and minor upgrading is required to support the anticipated volume of coal to be transported.

Tatu is strategically situated on the North Island of New Zealand and is a good underground access point for its own and adjacent coal tenements. Accordingly, the directors of SML believe there is the potential to expand the resource outside the boundaries of the existing tenement.

b) New Zealand Coal Market

Although the market for coal has been depressed globally, the directors of SML believe there are many small, near-term coal projects with captive markets and barriers to entry for sea-borne coal. Tatu fits SML's strategy to secure near-term producing assets, with low capital entry and significant upside potential. The Company is currently evaluating other small, near term or currently producing coal and mineral assets with markets logistically "locked" and, hence, capable of commanding above average pricing.

In New Zealand, there is approximately 1,000,000 tonnes per annum of lower quality thermal coal imported from Indonesia and the Company's research has confirmed that, due to the logistics associated with supply, current prices for this product are in excess of the global average.

c) Key SPA Terms

The terms of the SPA provide for the Company to purchase 100% of the shares of King Country Mine Limited ("KCM"), the holder of the mining permit and access contracts for Tatu, as follows:

· A non-refundable signing payment of NZ$5,000 payable within three business days of entering the SPA.

· A payment of NZ$127,500 for the purchase of 51% of the shares of KCM payable within three business days of entering the SPA. A portion of this payment (NZ$50,000) is non-refundable with the balance (NZ$77,500) being refundable should approval from the New Zealand authorities for change of control of the mining permits held by KCM not be forthcoming. A decision on this would be expected within four months.

· SML has the option, for ten (10) months from execution of the SPA, to acquire the remaining 49% of KCM for NZ$122,500 ("Option"). The exercise of this Option is subject to regulatory approvals by the New Zealand authorities for change of control of the mining permits held by KCM and SML providing to the vendors of KCM proof of financial capacity to commence the mine. Should SML not proceed with the Option, the vendors of KCM will acquire the 51% interest in KCM held by SML for NZ $1.

· The vendors of KCM will be entitled to a royalty stream from production of up to NZ$2 per tonne of product sold from the Tatu mine operations. The Company will have the right of first refusal on the sale or transfer of the royalty stream.

Under the terms of the SPA, production is to commence within twelve (12) months of exercise of the Option to acquire the remaining 49% of KCM. During the first five (5) years from when production is meant to commence, SML guarantees the current KCM owners a minimum average royalty payment of NZ$200,000 p.a. payable irrespective of quantity of product sold.

The vendors of KCM will have a right of first refusal in relation to the transport, loading and haul road maintenance contract(s) for Tatu.

d) Role(s) of Technical Adviser

The Company's mining engineering consultants (Valzan Pty Ltd) are currently updating previously prepared mining plans and these indicate that the Tatu mine can be operational within one year from the acquisition of KCM. The planned mining operations have an expected output of 100,000 tonnes during mine shaft excavation in the first construction year and 200,000 tonnes per annum thereafter.

Given the existing infrastructure, the "at surface" coal seam and the existing underground access points, it is currently expected that the capital cost to production will be relatively low.

The owners of KCM and the Valzan Pty Ltd ("Valzan") have had a long term relationship and introduced the Tatu project to the Company. For its introductory services in relation to the Tatu project, Valzan is being remunerated by an agreement to issue 250,000 new ordinary shares in SML, at a price of 1p per share, (the "Valzan Shares") and further cash payments based on performance of future sales from Tatu, capped at NZ$100,000 pa. Additionally, Valzan Pty Ltd has well-developed partnerships and links with Asian equipment suppliers and mining contractors that often assist with capital expenditure and operating expenditure financing. These funding alternatives will be explored and the Company looks forward to providing an update on this funding initiative in due course.

The Valzan Shares will be issued once the Company has received approval from the New Zealand authorities for change of control of the mining permits held by KCM.

e) Sales and Margins

New Zealand imports a significant quantity of thermal coal for energy generation, and domestic lime and concrete production. A number of potential large customers exist within a 150 kilometre radius from Tatu. The Company has contacted local coal marketers to assess demand and has commenced negotiations to distribute coal from Tatu.

Recent feedback from sales enquiries supports the Company's aim of securing a US$10 per tonne after tax profit margin, which would indicatively result in an after tax return in excess of 25% p.a. on current estimates.

In the year ended 31 March 2014, KCM generated an after tax loss of NZ$2,321 on revenue of NZ$23,000 and at 31 March 2014 had net assets of NZ$7,737.

Wanbao MoU

a) History and Resource 

The mining lease has previously produced premium coking coal with historical mining methods resulting in a 50% recovery of saleable product.

Current detailed mine plans, geological mapping and exploration boreholes cover the existing mine and exploration licences surrounding the existing historical mine operation.

A JORC resource is being completed to evaluate the mining lease and surrounding exploration areas and a review of the most appropriate mining methods will be undertaken. This resource and mine review will be completed in order to maximise the recovery of the potential reserves and recommend the best extractions methods.

b) Key Terms of the MoU

TNCW is to undertake, at its cost, a review of the resource potential of Wanbao within six months.

SML is to fully review the report and provide commentary on the perceived potential resource available and provide its thoughts on the most appropriate manner of accessing these resources.

During the review, SML is to consult with TNCW and provide advice on potential drilling and testing requirements.

TNCW has provided SML a six month exclusivity period during which time TNCW will provide, at its discretion, an offer of involvement in the on-going operations of Wanbao. Further announcements will be made as appropriate on the progress of this project and when further terms have been agreed.

c) China Coal Market

Like Tatu, the economic attractiveness of the Wanbao project benefits from access to local market users, which can result in sales prices in excess of current global markets.

Competent Person Statement

Mr Nick Gordon of Gordon Geotechniques Pty Ltd, is a geotechnical engineer, a Registered Professional Engineer in Queensland and a Chartered Professional (Geotechnical) of the Australasian Institute of Mining and Metallurgy. With more than 29 years' experience in open cut and underground coal mining in Australia and overseas, Mr Gordon meets the criteria of a qualified person under the AIM Rules - Note for Mining, Oil and Gas Companies. Mr Gordon has reviewed and approved the technical information for the Tatu Coal Mine contained within this announcement.

Neither Mr Gordon nor Gordon Geotechniques Pty Ltd have any material interest, direct or indirect, in the securities of SML or any companies associated with SML.

For further information, please contact:

Forward Looking Statements

This release includes forward looking statements. Often, but not always, forward looking statements can generally be identified by the use of forward looking words such as "may", "will", "expect", "intend", "plan", "estimate", "anticipate", "continue", and "guidance", or other similar words and may include, without limitation statements regarding plans, strategies and objectives of management, anticipated production or construction commencement dates and expected costs or production outputs. Forward looking statements in this release include, but are not limited to, the capital and operating cost estimates and economic analyses from the Study.

Forward looking statements inherently involve known and unknown risks, uncertainties and other factors that may cause the company's actual results, performance and achievements to differ materially from any future results, performance or achievements. Relevant factors may include, but are not limited to, changes in commodity prices, foreign exchange fluctuations and general economic conditions, increased costs and demand for production inputs, the speculative nature of exploration and project development, including the risks of obtaining necessary licences and permits and diminishing quantities or grades of resources or reserves, political and social risks, changes to the regulatory framework within which the company operates or may in the future operate, environmental conditions including extreme weather conditions, recruitment and retention of personnel, industrial relations issues and litigation.

Forward looking statements are based on the company and its management's good faith assumptions relating to the financial, market, regulatory and other relevant environments that will exist and affect the company's business and operations in the future. The company does not give any assurance that the assumptions on which forward looking statements are based will prove to be correct, or that the company's business or operations will not be affected in any material manner by these or other factors not foreseen or foreseeable by the company or management or beyond the company's control.

Although the company attempts to identify factors that would cause actual actions, events or results to differ materially from those disclosed in forward looking statements, there may be other factors that could cause actual results, performance, achievements or events not to be anticipated, estimated or intended, and many events are beyond the reasonable control of the company. Accordingly, readers are cautioned not to place undue reliance on forward looking statements.

Forward looking statements in this release are given as at the date of issue only. Subject to any continuing obligations under applicable law or any relevant stock exchange listing rules, in providing this information the company does not undertake any obligation to publicly update or revise any of the forward looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.