Shares in Strategic Minerals (SML) plummeted 23 per cent following the release of its first-half financial results. They provided the first real glance at how the company's iron ore mining operations in New Mexico are faring. Not well, is the answer.
Strategic Minerals produced and sold 247,000 tonnes of magnetite iron ore in the six months to 30 June - less than expected, but not too bad - generating £14m in revenues. But higher-than-expected costs and lower-than-expected freight-on-board (FOB) prices almost completely wiped out profits. The New Mexican operations generated cash operating profits of just £325,000, leading to a net loss of £3.5m for the period.
This was supposed to be a low-cost operation, with the company essentially shovelling 'delivery-ready' material into containers and getting them to a port. Third-party mining contractors are proving more expensive than anticipated, as are freight costs and royalties owed to Freeport-McMoRan.
As a result, Strategic Minerals is now running low on cash, with just £1.3m in the kitty despite a £4.2m placing earlier in the year. We do not expect the company to be able to turn around the operation in the short term.
