{"id":59628,"date":"2012-03-09T11:55:49","date_gmt":"2012-03-09T00:55:49","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/03\/09\/a-short-term-pause-for-sandfire-resources\/"},"modified":"2012-03-09T11:55:49","modified_gmt":"2012-03-09T00:55:49","slug":"a-short-term-pause-for-sandfire-resources","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/03\/09\/a-short-term-pause-for-sandfire-resources\/","title":{"rendered":"A Short Term Pause For Sandfire Resources?"},"content":{"rendered":"

\n\t – Sandfire<\/span> continues to progress DeGrussa<\/span> project
\n\t – Exploration and M&A activity potential sources of upside
\n\t – Value becoming an issue for some brokers
\n\t – Citi<\/span> downgrades to a Neutral rating<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tAs Sandfire<\/span> Resources ((SFR)) continues to transition from explorer to copper and gold producer, this week's interim profit result was somewhat irrelevant in the view of UBS. More significant was the fact progress at the DeGrussa<\/span> project remains on schedule.<\/p>\n

\n\tCiti<\/span> notes mining of ore is now underway at the open pit and underground mines, which implies first ore will be in the mill in the third quarter of this year. The project is still on track to be delivered within its budget of $385 million and UBS expects production of 13,000 tonnes<\/span> of copper and 2,000 ounces of gold this year. <\/p>\n

\n\tThis is expected to increase to production of 76,000 tonnes<\/span> of copper and 37,000 ounces of gold at a cash cost of US$1.43 per pound in FY13<\/span>. This will be the first full year of production.<\/p>\n

\n\tOne positive out of the interim report for JP Morgan is during the December half, Sandfire<\/span> executed final documentation for a $390 million project finance facility. Of this, $190 million has been drawn to date, while Sandfire<\/span> at present has net debt of $86 million.<\/p>\n

\n\tLooking at coming months, Citi<\/span> notes exploration efforts from Sandfire<\/span> will ramp up this year as management looks to underpin a longer operating life and\/or expansions to the existing infrastructure. Around $20 million per year will be spent on exploration commencing this year.<\/p>\n

\n\tThis offers some upside, UBS viewing Sandfire's<\/span> tenement positions in Western Australia as highly prospective and likely to lead to both extensions to current resources and new discoveries. Early drilling activity has returned some interesting gold-only results notes JP Morgan.<\/p>\n

\n\tFurther positive exploration results are required in the view of JP Morgan, as the broker suggests the market is continuing to price in such exploration success beyond perfect execution of the existing DeGrussa<\/span> project.<\/p>\n

\n\tThis is enough for JP Morgan to retain an Underweight rating on Sandfire<\/span>, while Citi<\/span> has downgraded to Neutral from Buy on the same valuation basis. The FNArena<\/span> database shows total ratings on Sandfire<\/span> number two Buys, two Neutrals and JP Morgan's Underweight. Goldman Sachs is not in the database but rates Sandfire<\/span> as a Buy on valuation grounds.<\/p>\n

\n\tOne of Citi's<\/span> concerns is heightened operational risk as commissioning approaches. The other factor in Citi's<\/span> downgrade is share price upside via exploration success is unlikely in the near-term, while potential M&A activity involving Sandfire<\/span> is also viewed as unlikely in coming months.<\/p>\n

\n\tJP Morgan agrees, pointing out Sandfire<\/span> has two major shareholders and one, Oz Minerals ((OZL<\/span>)), has continually downplayed interest in a full takeover offer. Corporate action involving the company should not be totally ruled out in the view of UBS, especially given Oz Minerals has a 19.8% stake at present and the funds to consider acquisitions.<\/p>\n

\n\tUBS continues to see value in Sandfire<\/span> at current levels, its Buy rating supported by a $9.50 price target. This is well above most other targets in the market, as Macquarie has a target of $7.00 and JP Morgan $7.40. The consensus price target according to the FNArena<\/span> database stands at $8.44.<\/p>\n

\n\tShares in Sandfire<\/span> today are slightly weaker and as at 11.20am the stock was 1c<\/span> lower at 7.85. Over the past year Sandfire<\/span> has traded in a range of $5.52 to $8.62, the current share price implying upside of about 7% relative to the consensus price target in FNArena's<\/span> database.<\/p>\n

\n\t 
\n\tFind out why FNArena subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Development at DeGrussa and exploration success remain crucial for Sandfire Resources.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59628"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59628"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59628\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59628"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59628"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59628"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}