Strategic Elements to become only ASX listed rare earths pooled development fund

Strategic Elements (ASX: SOR) hits the Australian Stock Exchange boards today after a successful oversubscribed IPO - and becomes Australia’s only rare earths focus pooled development fund.

Strategic Elements has over $4 million cash post the IPO in hand and plans to invest into Australian companies across the rare earths and rare metals mining, processing and materials development sector.

The objective will be to discover economic deposits of rare earths, mine these minerals and develop them into value added materials.

Strategic will target emerging growth companies identified as having large scale potential upside and will assist with capital, technical expertise and industry alliances.

Charles Murphy, managing director of Strategic, said “we believe rare earths is a big growth story because of huge demand, and registration as a pooled development fund means that investors can get exposure to the potential upside of the sector without having to pay tax on capital gains or dividends.”

The company provides investors with exposure to a small portfolio of rare earths focused companies in their early growth stages.

Strategic Elements currently has investments in two wholly owned subsidiaries focusing on rare earths exploration and rare earths research and development respectively – Strategic Materials and Australian Advanced Materials.

The company will seek a return on its investments through:

- A sale of the shares it holds in an investee company;
- Dividends connected with royalties and; and
- A merger of its investee company with another company.

Strategic Elements has a vertical integration strategy to invest across the rare earths value chain.
Investee company Strategic Materials Pty Ltd will be the first to seriously explore for rare earths in mineral rich New Zealand where the company has secured some highly prospective permits.

The New Zealand project complements the Australian exploration program to discover large deposits of 17 nonferrous metals such as scandium, yttrium and 15 lanthanides in Western Australia, Queensland and New South Wales.

In addition to exploration, Strategic Elements will also invest in mining, processing and materials development by providing capital, technical expertise and industry alliances to early stage small and medium sized Australian companies.

The company will be investing in Australian Advanced Minerals, a wholly owned research company that will focus on licensing of intellectual property relating to the spectral, electronic or magnetic properties of rare earth elements.

Strategic Elements has signed an investment deed with New York based Bergen Global Opportunity Fund II (Bergen Global) giving the fund a right of first refusal to invest further equity in the company.

The fund will also assist the company with investment transactions into Australian rare earths and rare metals companies.

Background on Pooled Development Funds (PDF)

The PDF program was established by the Australian Federal Government to encourage the provision of patient equity capital to small and medium sized Australian companies.

A PDF status creates a strong point of difference for Strategic Elements because most shareholders pay no tax on capital gains or dividends and the company only pays a corporate tax rate of 15% on PDF income and 25% on other income.

Analysis

If growth in value of ASX listed rare earth stocks is any guide, then Strategic has wind in its sails.
Australian listed companies in this sector include, Lynas Corporation (ASX: LYC), Arafura Resources (ASX: ARU),  Alkane Resources (ASX: ALK).

However, that investors can gain an exposure to the potential upside of the sector at an early stage without having to pay tax on capital gains or dividends is a quantifiable plus. The company will only pay a corporate tax rate of 15% on PDF income and 25% on other income.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/18558/strategic-elements-to-become-only-asx-listed-rare-earths-pooled-development-fund-18558.html