Tri-Star Resources: Potential To Become A Material Mineral Processor

Tri-Star Resources is working to establish itself as a mining and mineral technology company. It has formed a JV (40% stake) with two significant partners in the Gulf to construct a mineral roaster and a third party assessment expects that a roaster in the region could deliver annual EBITDA of up to $59.6m. In addition, the group has prospective antimony mine sites in Canada and Turkey which could supply the roaster. There also could be significant further upside if the roasting IP can be used to treat refractory gold ores, which we understand is a considerable potential market. We recognise the risks of investing in a pre-feasibility stage company, however our valuation gives a target of 0.60p per share or upside of 300%. Speculative Buy.

Roaster To Produce 20,000 Tonnes Antimony Per Annum

Roasting can be applied to metal ores so that the metal within them can be processed. Tri-Star has developed a roasting method that it expects to use to construct a roasting plant by 2016 that is environmentally compliant to EU standards and that will deliver a NPV of up to $241.5m for CapEx of $60m. It is to be located in the Sohar Free Trade Zone in Oman, which has benefits such as a potential 0% tax rate. Tri-Star could construct up to three roasters in this region each producing 20,000 tonnes of antimony (Sb) per annum.

Roasting IP Could Also Be Applicable To Refractory Gold Ores

A third party assessment suggested a refractory gold plant could produce up to 500,000oz Au per annum, with each plant costing $342m with a NPV of $532m. However, there could be considerable value in the IP with minimal costs for Tri-Star if it could be licensed under a royalty model, for example.

Tri-Star is Establishing Mines to Own the Supply Chain

Tri-Star’s potential mine in Turkey has a very preliminary estimate of c.350,000 tonnes at 1-3% Sb. Tri-Star also owns multiple claims within Canada, one of which has a preliminary estimate of 725,000-1,000,000 tonnes at 4.11-5.32% Sb. However, recent drilling here suggests the target could be much larger. If successful these mines will supply the roaster.

Valuation

We feel Tri-Star has taken a number of steps recently towards becoming a fully integrated antimony producer, including the establishment of a JV with two major partners to construct the roaster. In addition, it is also exploring the possibilities of applying the roaster IP to refractory gold, which could provide considerable upside. We also note that there are risks to the investment case that could have a material effect on our valuation, such that Tri-Star does not generate revenues as we have forecast or if any dilution occurs given the group does not yet generate cash. However, as we have attempted to account for these risks in our valuation, and it still suggests a target price of 0.60p, our stance is Speculative Buy.