Strategic Minerals Regulatory News (SML)

3 March 2016

Strategic Minerals plc

("Strategic Minerals" or the "Company" or the "Group")

Update for the three months to 31 December 2015

Strategic Minerals plc (AIM: SML; USOTC: SMCDY), the diversified mineral development and production company, is pleased to provide the following update on the Company's operations for the three months to December 2015.

Highlights:

· Sales from Cobre operations ended the year on a strong note and the pipeline for 2016 looks promising. Early agreement was secured to extend the Cobre mining rights to March 2017;

· Negotiations completed in January 2016 to acquire 50% of Central Australian Rare Earth Pty Ltd ("CARE");

· The Company ceased its activity on the Tatu Project and SML ended its involvement in February 2016; 

· Withdrew from the discussions on the Wanbao Coal Mine in China due to the difficulties in attracting funding;  

· The Company maintained a tight control on overheads, although increased activity has had some impact;

· Cash of US$1.048m as at 31 December 2015; and

· The Group's strategy has been reviewed and the Board has identified a three-pronged approach across all minerals addressing coal and bulk minerals, advanced materials and metals (focusing on those the Board believes are likely to see some price increases over the coming years, such as Nickel). 

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

"As part of its stated objective to add a second expansion project, and in line with deteriorating bulk commodity prices, the Company adjusted its strategy to focus on a broader resources approach which includes seeking projects that we believe are likely to have greater price upswings in the foreseeable future, as we believe the case to be with nickel. While arranging a suitable transaction in nickel, conditions relating to the Tatu project deteriorated and the Board took the decision to cease the Company's involvement in this project, preferring to safeguard funds for other projects more likely to produce better results, such as its investment in CARE. The Board is confident that the Company can maintain cash flows from its Cobre operation to help fund existing and future project developments.

"Over the first half of 2016, the Board will be focussing on securing additional sales from Cobre and agreeing the drill programme at the Laverton project in preparation for drilling. The Group will update the market in due course."

Cobre magnetite tailings operations

In the second half of the year, falling oil prices have had a positive effect on activity within the US. In the period under review, we saw strong demand for magnetite and this has continued into 2016. This has offset the dip in sales that occurred mid-year in 2015. The lower oil price has also meant that the economically viable distribution area for our magnetite has widened and we are currently negotiating with a cement company looking to take a substantial order. This party has previously taken material from Cobre and recently completed a site inspection.

Sales and volumes details at Cobre over the last three years are as follows:

Tonnage Sales (US$'000)

_______________________________________________________________ _____________________________ ___________________________________

Year 3 months to Dec. 12 months to Dec. 3 months to Dec. 12 months to Dec.

2015 7,524 18,454 $513 $1,251

2014 3,029 18,780 $208 $1,266

2013 2,492 14,996 $163 $1,016

As previously reported to the market, Strategic Minerals obtained an early confirmation extending our operations at Cobre to 31 March 2017 with the term rolled annually, if not advised otherwise by the end of February of each year. 

When the Cobre project was first undertaken a contract with the railroad company was entered into to upgrade the rail spur to the mine, at a cost exceeding US$3m. This upgrade was to ensure the spur line was capable of removing 1,500,000 tons of magnetite within two years. Warranties relating to the capacity of the rail line to meet such traffic were given by the railroad company to Strategic Minerals' wholly owned subsidiary Southern Minerals Group llc ("SMG"). SMG has had a number of discussions concerning this with the railroad company and is currently planning to file a legal claim for re-imbursement of funds expended on the upgrade as it believes that the history of derailments and "go slow" on the line breached the warranties given.

Acquisition of 50% of Central Australian Rare Earth ("CARE")

During the period under review, the Company negotiated and conducted due diligence on the rights to acquire, from Rarus Limited ("Rarus"), up to 50% of CARE for AUD$380,000 (approximately USD$270,000 or £190,000) with an initial subscription of 25.5% acquired for AUD$130,000, which will be used to repay third party loans made to CARE to fund tenement fees. The Company has the right to acquire up to an additional 24.5% over a 12 month period for AUD$250,000 (the "Second Subscription") with each subscription for shares to be a minimum of AUD$50,000. After Strategic Minerals has subscribed for AUD$380,000 worth of shares in CARE it will own 50% and Rarus will own 50%. Each party will fund its 50% of costs for future work or either party can be diluted.

CARE has ownership rights on twenty four tenements. Four of these tenements, known as the Laverton Project, are subject to a farm-in joint venture with ASX-listed Focus Minerals Limited ("Focus") that grants CARE the right to explore Focus' tenements near the Western Australian Goldfields town of Laverton for 90% ownership of, nickel and other commodities discovered in the tenements excluding gold, copper (where it is the dominant commodity present) and silver to which Focus maintains 100% ownership rights.

The AUD$250,000 from the Second Subscription will be used to fund a nickel sulphide exploration drilling programme at the highly prospective Hanns Camp Prospect located within CARE's Laverton Project. Further details on the geology of the site can be found in the Company's announcement dated 1 February 2016 and more information on CARE's Laverton Project, including the Hanns Camp drilling proposal, maps and previous drilling results are available on the Strategic Minerals website.

In addition to the Laverton Project, CARE holds 100% of a number of tenements in Western Australia that are prospective for rare earths, including properties adjoining Lynas Corporation's Mount Weld REE Mine, and some of these tenements may also be prospective for gold.

Rarus has over the past three years secured and developed plans to explore the tenements held in CARE and has expended over USD$1 million to date in the process. A proposal to drill-test the targets at Hanns Camp has already been prepared and both Rarus and Strategic Minerals are reviewing and updating the proposal to reflect current costings with a view to carrying out the drilling programme in Q2 2016.

As previously noted, Strategic Minerals' Chairman, Alan Broome, is also a Non-Executive Director of Rarus and has now been made a Director of CARE.

Exiting of involvement with Tatu coal mine

During the period, the Company, through its investment in King Country Mining ("KCM"), conducted a bulk sample survey on the Tatu Project which, whilst producing results largely consistent with previous assessments, required further testing to prove that deposits situated further from the planned mine entrance has lower sulphur concentrates in line with that associated with previous underground mining. At the same time, the Company had been reviewing the local domestic coal market and had identified a number of potential customers in order to garner support for the project via a pre-order book.

Any further testing on the project would involve considerable additional expenditure and therefore the Board considered it prudent to seek, without additional cost, a timing extension on the Option and to more vigorously test the sales market before committing further funds to the project. In this regard, the Board found:

1) That despite attempts to reach a mutually agreeable basis for extending the Option to complete on the Tatu acquisition, Strategic Minerals and the vendor of KCM were unable to reach agreement on an extension to the Option exercise deadline;

2) Local New Zealand coal prices likely to be depressed for two to three years, which in the Board's opinion, will primarily arise from deteriorating business conditions combined with Genesis Energy Limited running down its coal stockpile in the North Island of New Zealand; and

3) Customers being reluctant to commit to future orders due to market uncertainty arising from the likely demerger of Solid Energy's coal assets and the impact this will have on current and future coal contracts.

In light of the above, and as the Company was unable to gain a meaningful extension to the Option deadline, the Company ceased Tatu Project activity so as to focus its resources on other projects.

Wanbao project

During the period, the Company continued to explore potential involvement in the proposed re-opening of the Wanbao coal mine.

While the directors of Strategic Minerals believe the dynamics of the project, both operationally and financially are strong, the Company has observed a reticence in the market to fund both coal and projects in China. Attempts to secure funding from private equity sources have also proven unsuccessful to date. As previously noted, the Board of Strategic Minerals confirmed that funding of this nature would need to be secured before any firm commitment could be made to the project and, accordingly, does not consider it will progress with the project.

Financials

In the period, the Company continued to maintain a tight control on overheads although increased activity has had some impact. Overheads, on an annualised basis, continue to remain under USD$1million (excluding variable project review costs and foreign currency movement).

In light of the cessation of our involvement in the Tatu project, overheads have been cut further with a reduction in the Managing Director's remuneration and the CFO being moved to a consulting basis. The overheads of being a listed company have been reduced as much as possible and it is intended that remuneration of Management and Directors, when combined with the listing overheads, will be maintained within the operating profitability of the Cobre mine. Accordingly, any use of funds above this will be, specifically, project orientated.

At the end of the December 2015 quarter, the Company had USD$1,048,058 in cash compared to USD$1,347,240 as at the end of September 2015.

On balance, the Directors believe that cash flows from Cobre's operations and the reduction in corporate overheads should ensure that adequate reserves exist to progress existing operations.

Strategy review

The deterioration of resources market conditions has seriously impacted the ability of the Board to deliver on the strategy previously expounded. The attempt to capture near term cash generating assets has become increasing difficult as projects, previously viable, slide into care and maintenance.

Given that the Company is an operator of a cash generating resources business, it is in the fortunate position to maintain its operations without seeking equity raisings that are not project specific. At the same time, it is aware that shareholders are looking for some form of major lift in share price/market capitalisation.

Accordingly, the Board reviewed its investment strategy and decided to adopt a three-pronged approach focusing its attention on ensuring that operations are self-funding and will look to identify projects across all minerals as follows:

a. Coal and Bulk Materials - given the difficulties in this sector of the market, the Board has decided to focus on potential projects in this sector that are tied to current contracts and further offtake arrangements at attractive prices.

b. Advanced Materials - the Board will also seek to review project opportunities in materials where it expects demand to increase over the coming years (such as Rare Earths, Lithium and Graphite).

c. Metals - the Board will look to identify those projects exposed to metals that it expects to have price improvements over the next three to five years such as Nickel, gold, copper and tin/tungsten.

The Board is not looking for long term resources banks but are seeking to find transactions where it can provide input that it anticipates will quickly see value creation.

It is the Board's long-term view that provided the Company can maintain its operations from Cobre cash flows, attractive investment opportunities are likely to arise as micro/junior miners face cash flow issues.

Near term objectives

Over the near term, the Directors of Strategic Minerals plan to:

· Progress sales opportunities at the Cobre mine;

· Review and undertake drilling at the Laverton project;

· Proceed with the railroad claim associated with the Cobre mine;

· Monitor and control corporate overheads in line with operating profits; and

· Seek another expansion project.

The Company looks forward to providing further updates in due course.

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.