Strategic Metals Ltd – More Good News

by JDH on April 28, 2007

Strategic Metals Ltd. is one of my favorite holdings. According to their web site, “Strategic Metals Ltd. is a well funded junior mining company specializing in generative exploration in northwestern Canada. Its business model entails acquiring quality prospects, advancing them to drill stage and then arranging an option or outright sale. This generative model is designed to minimize shareholder dilution while maximizing exploration expenditures and the probability of success.”In other words, they find a good property, advance it to the drilling stage, and then either sell it or option it. If they sell it they make a profit. If they option it, they get shares in the new company, which then must provide the financing to take it to the next level. Strategic shares in the growth, without the financing risk. They have a track record of success. Over the last year SMD gave Twenty Seven Capital Inc (TSC.V) all of its uranium projects in return for 5 million shares in TSC. SMD then participated in a small financing to add to its TSC position. Twenty Seven was just bought out by MGA.TO – Mega Uranium Ltd. As a result, SMD ended up with lots of cash. Strategic has many more commodity packages that it plans to spin-out into a new company to repeat this success. What’s next?

Back on March 2 SMD.V – Strategic Metals Ltd. issued a press release announcing:

“…that it has entered into an agreement in principle with Zinccorp Resources Inc. (“Zinccorp”), a private company recently incorporated by Richard Hughes.

The key terms of the agreement, which is subject to the execution of a definitive agreement, are as follows:

– Strategic has agreed to sell its Bar, Convert, Kit and Michelle claims, all situated in the Yukon Territory, to Zinccorp in exchange for that number of common shares and share purchase warrants of Zinccorp that will equal 50% of Zinccorp’s issued common shares and issued share purchase warrants following its completion of its seed capital financing;

– Strategic will also subscribe for 25% of the seed capital financing currently being raised by Zinccorp, estimated to be at least $2 million, by the sale of units at $0.15 per unit, each unit to consist of one common share and one share purchase warrant, with each warrant to entitle the holder to purchase one additional common share at a price of $0.25 for a period of 2 years from the listing of Zinccorp’s common shares on the TSX Venture Exchange (the “Exchange”);

Strategic will distribute to its own shareholders pro rata certain of the common shares and share purchase warrants of Zinccorp to be issued to it by way of a plan of arrangement on the basis of one Zinccorp common share and one Zinccorp share purchase warrant for each four (4) common shares of Strategic held;

– The distribution of these Zinccorp common shares and Zinccorp share purchase warrants to Strategic’s shareholders is intended so as to provide Zinccorp with sufficient distribution to qualify for a listing on the Exchange.”

Strategic intends to complete the plan of arrangement and distribute the Zinccorp shares and Zinccorp warrants to its shareholders this June. Additional information on the plan of arrangement will be made available in a management information circular to be mailed to shareholders in advance of Strategic’s Annual and Special General Meeting which it intends to hold in May, at which shareholder approval will be sought by way of special resolution for the plan of arrangement, which will also be subject to regulatory acceptance.

So here’s the deal: Strategic Metals gives up it’s properties, ends up with $2 million in cash, and gets 50% of the new company. Existing shareholders in Strategic will get “one Zinccorp common share and one Zinccorp share purchase warrant for each four (4) common shares of Strategic held“. In effect, we get these shares for free, and we get to share in the future upside.

But that’s not all: On April 26, 2007 Strategic Metals announced that it has

“…completed the definitive agreement with Southampton Ventures Inc. regarding the NiMo Project. Under terms of the agreement, Southampton has an option to earn an initial 75% of Strategic’s 100% interest in the NiMo Project by spending $6 million on exploration by December 31, 2007. Southampton has issued to Strategic 2,000,000 common shares of Southampton, 1,000,000 common share purchase warrants (which entitle Strategic to acquire one common share of Southampton at an exercise price of $1.25 until March 22, 2009) and reimbursed Strategic’s costs relating to the NiMo Project. Southampton can earn an additional 25% interest, for an aggregate 100% ownership of the NiMo Project subject to a 1% net returns smelter royalty (NSR) in favour of Strategic, by issuing to Strategic an additional 2,000,000 common shares and 1,000,000 common share purchase warrants, at any time before December 31, 2008.”

There is more good news, so I suggest you read the full press release.

The chart still looks good:

Strategic Metals Ltd.

The RSI is at a good level, the trend is up, and although this will be a bumpy ride, I still like it. As the world catches on to their business model, and as they announce more of these deals, the stock will continue to rise. Also, this is not a uranium play, so it gives me some diversification away from uranium. Finally, our old friends at PNP.TO – Pinetree Capital Corp. are big shareholders (in fact back on April 9 Pinetree announced that they have increased their holdings to 13.8% of Strategic, so they like it too). I like it, so I’m holding.