Strategic Minerals Regulatory News (SML)

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

9 November 2020

Strategic Minerals plc

("Strategic Minerals" or the "Company")

Leigh Creek Copper Mine Project Economics Update

Strategic Minerals plc (AIM: SML; USOTC: SMCDY), a profitable producing mineral company, announces the results from both a review of the Leigh Creek Copper Mine ("LCCM") project and from the recently received report from PPM Global ("PPM") in relation to the anticipated capital and operating costs associated with planned production at the Lynda/Lorna Doone deposits within the LCCM project.

Highlights

· Project funding requirement reduced to US$2.2m as a result of the adoption of an alternate mine schedule for processing the Paltridge North deposit and use of external contractors to undertake mining.

· Total LCCM project pre-tax cash has increased by over US$5m to US$35.4m (US$26.7m NPV 8%) due to earlier commencement and shorter processing of Lynda/Lorna Doone deposits.

· Confirmation from PPM that forecast capital requirements and operating costs for planned production at Lynda/Lorna Doone are reasonably based.

· PPM's high-level review of alternative processing options at Lynda/Lorna Doone indicates scope for significant profitability improvements.

· Asset level funding discussions continue and additionally include the option to fund via an ASX listing or pre-IPO offering.

Overview

The Leigh Creek Copper Mine project comprises a number of copper oxide deposits located in the North Flinders ranges of South Australia. There is an existing mining license and processing plant (Mountain of Light). Within the existing tenements there are four identified deposits, three of which are JORC compliant. These are Paltridge North, adjacent to the Mountain of Light processing plant, and the Lynda and Lorna Doone deposits, close by each other but around 75km from the Mountain of Light processing plant.

As these three deposits have not been mined, LCCM needs to obtain, for each deposit, an approval from the South Australian government for a Program for Environmental Protection and Rehabilitation ("PEPR") before commencing mining on that deposit. LCCM has submitted a PEPR for mining Paltridge North and it is LCCM's expectation that this will be granted and mining will commence in 2021 subject to the receipt of financing. Mining of the Paltridge North deposit is expected to take approximately 13 months although the recovery of all the copper via the heap leach process will take around 5 years with the majority processed within the first 18 months.

Once cashflow commences at Paltridge North, LCCM intends to prepare the PEPR in relation to the Lynda/Lorna Doone deposits (which together represent double the amount of potential recoverable copper compared to the Paltridge North deposit). It is anticipated that this will be mined for 32 months and copper recovered over 7 years.

Project Scheduling

In reviewing the timing of anticipated processing of both the Paltridge North and Lynda/Lorna Doone deposits, the Company has been able to;

1. Advance the anticipated receipt of revenues from the Paltridge North deposit by a month and has reduced capital expenditure through outsourcing the mining component to external contractors. While the use of external contractors reduces capital costs, operating costs have been increased. However, this has been more than offset by the lowering of operating costs associated with refining assumptions to reflect LCCM's previous experience in operating the plant.

2. The PPM review of the Lynda/Lorna Doone capital costs has indicated that LCCM's previous budget for establishing a plant at the Lynda/Lorna Doone site which included relocating part of the Mountain of Light facility to this area, is very similar to the cost of constructing a new plant at Lynda/Lorna Doone. This has had a significant impact on the project's expected timetable as the commencement of operations at Lynda/Lorna Doone are no longer dependent on the cessation of operations at the Mountain of Light processing plant. Accordingly, this has provided the opportunity to both bring forward commencement of operations at Lynda/Lorna Doone by around 18 months and process 300 tonnes of copper per month in copper cement. This shortens the time to produce the expected copper from Lynda/Lorna Doone, thus significantly reducing overheads and increasing profitability.

PPM Review of Heap Leach Kennecott Cone Production of Copper Cement at Lynda/Lorna Doone

The Company recently engaged PPM to independently review the likely capital and operating cost of developing the Lynda/Lorna Doone deposit, scheduled to commence during the third year of operations at LCCM. This was undertaken in response to potential investors' queries concerning the Company's internal LCCM financial assessment of capital and operating costs for the mining and processing of the deposits. PPM has over twenty years' experience operating in this field, including two periods operating the Leigh Creek Copper Mine (around 2012 and in the restart in 2019).

Previously, the Company's development plan involved acquiring plant and moving some of the existing Mountain of Light plant to the Lynda/Lorna Doone deposits for an estimated A$5.00m. PPM identified that the capital cost of establishing a new plant at Lynda/Lorna Doone would be A$3.40m. To this assessment, it is also necessary to make allowance for the creation of leach pads, on site buildings and road infrastructure which were not part of the PPM brief. Management has assessed these costs at A$1.60m which produces an overall capital cost, prior to contingency, of A$5.00m. Unlike its previous analysis, LCCM has additionally provided for a 15% contingency allowance on this capital cost resulting in a total budgeted cost of A$5.75m (US$4.00m).

The pre-contingency capital cost of A$5.00m is detailed below:

The PPM report also addressed anticipated operating costs and these have been integrated into the Company's financial analysis with critical/major costs being associated with the supply of scrap steel, acid and labour.

In reviewing the costs of starting production at the Lynda/Lorna Doone deposits, an allowance for the cost of obtaining PEPR approval of A$750,000 has been estimated which has been incorporated in the Company's financial assessment of the project.

The Company's financial analysis of the combined operations of Paltridge North and the Lynda/Lorna Doone deposits, assuming the same Copper Price of US$6,614 tonne (US$3/lb) and an AUD/USD Exchange Rate of 0.7000, is as follows:

* The Paltridge North analysis was completed at a "feasibility study" level for submission of the PEPR. The Lynda/Lorna Doone analysis reflects the comments of PPM and the Company's internal analysis only.

** There is considerable overlap between the Paltridge North LOM and that of the Lynda/Lorna Doone LOM. In the case of Lynda/Lorna Doone, the LOM reflects the preparation, submission and securing of the PEPR.

*** Whilst start-up capital for Paltridge North is only US$1.6m, a further US$0.6m is required in working capital to remove overburden on the Paltridge North deposit. Accordingly, this higher strip ratio results in a total funding requirement of US$2.2m prior to receiving revenue.

**** Start-up capital for the Lynda/Lorna Doone Deposit is expected to be sourced from cashflow generated from production associated with the Paltridge North deposit. Accordingly, it is anticipated that the two projects can be achieved with total funding of US$2.2m.

PPM Review of Alternative Processing of Copper at Lynda/Lorna Doone

As part of their review of the Lynda/Lorna Doone deposit, PPM were also tasked with considering the application of either:

a) A mini Solvent Extraction Electronic Winning (SX-EW) plant process at site, which has the potential to produce London Metal Exchange ("LME") grade copper cathode for direct to market sale. The key conclusions from this high-level review were that it would need significantly higher levels of capital investment, an additional US$7.2m, but the production of a copper cathode would result in an approximate 18% increase in sales revenue and significantly reduce operating costs. The overall result would see an increase in project profitability in the order of US$19.6m; or

b) A copper sulphate plant, designed to supply Australian demand at around the LME price. The key conclusions here were that for only a small increase in the capital cost, an additional US$4.5m, revenues could be increased by approximately 20% and operating costs also reduced. Again, this would greatly increase the project's profitability by the order of US$18.5m.

Update on Project Funding

The Board and Management have held discussions with a number of parties, several of whom have expressed an interest in the project. The Company has also researched the possibility of listing the LCCM project on the Australian Stock Exchange and has received positive feedback that the project is of a sufficient size that a listing of LCCM, in its own right, is a viable proposition. This could also provide the potential for the project to be funded on a pre-IPO basis.

The Company considers that it can achieve the best value for the asset after the anticipated PEPR is granted. LCCM's current expectations are that this will allow commencement of operations at the Paltridge North deposit in 2021, subject to receipt of funding.

Commenting, John Peters, Managing Director of Strategic Minerals, said:

"The reduced capital requirements, increased profitability and the market's bullish sentiment on copper prices, have strongly improved the attractiveness of the LCCM project and the Board and Management are confident that funding will be sourced after the Paltridge North PEPR has been confirmed, if not before.

"The confirmation by PPM of Lynda/Lorna Doone's capital requirements and likely operating cost structures has helped to reinforce LCCM's expected profitability from processing both the Paltridge North and Lynda/Lorna Doone deposits.

"The Company is also encouraged by the potential of producing copper sulphate at the Lynda/Lorna Doone site and the associated increase in profitability that may arise from a modest increase in capital cost. Management is actively following up on this line of research.

"The Board considers that LCCM's robust economics will attract the funding required to commence operations in 2021. This, combined with further development of the Copper Sulphate processing option and compelling near-term cash generation from Paltridge North, is expected to produce meaningful added value in the Company."

Notes to Editors

Strategic Minerals plc is an AIM-quoted, profitable operating minerals company actively developing projects tailored to materials expected to benefit from strong demand in the future. It has an operation in the United States of America along with development projects in the UK and Australia. The Company is focused on utilising its operating cash flows, along with capital raisings, to develop high quality projects aimed at supplying the metals and minerals likely to be highly demanded in the future.

In September 2011, Strategic Minerals acquired the distribution rights to the Cobre magnetite tailings dam project in New Mexico, USA, a cash-generating asset, which it brought into production in 2012 and which continues to provide a revenue stream for the Company. This operating revenue stream is utilised to cover company overheads and invest in development projects orientated to supplying the burgeoning electric vehicle/battery market.

In May 2016, the Company entered into an agreement with New Age Exploration Limited and, in February 2017, acquired 50% of the Redmoor Tin/Tungsten project in Cornwall, UK. The bulk of the funds from the Company's investment were utilised to complete a drilling programme that year. The drilling programme resulted in a significant upgrade of the resource. This was followed in 2018 with a 12-hole 2018 drilling programme has now been completed and the resource update that resulted was announced in February 2019. In March 2019, the Company entered into arrangements to acquire the balance of the Redmoor Tin/Tungsten project which was settled on 24 July 2019 by way of a vendor loan which was fully repaid on 26 June 2020.

In March 2018, the Company completed the acquisition of the Leigh Creek Copper Mine situated in the copper rich belt of South Australia and brought the project temporarily into production in April 2019.