{"id":61429,"date":"2013-03-05T13:03:20","date_gmt":"2013-03-05T02:03:20","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2013\/03\/05\/upgrades-spreading-like-sandfire\/"},"modified":"2013-03-05T13:03:20","modified_gmt":"2013-03-05T02:03:20","slug":"upgrades-spreading-like-sandfire","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2013\/03\/05\/upgrades-spreading-like-sandfire\/","title":{"rendered":"Upgrades Spreading Like Sandfire"},"content":{"rendered":"

\n\t-Maiden interim profit
\n\t-DeGrussa<\/span> problems in hand
\n\t-Results instigate re-rating
\n\t-Costs uncertain<\/strong>
\n\t <\/p>\n

\n\tBy Eva Brocklehurst<\/span><\/p>\n

\n\tRatings upgrades came thick and fast for Sandfire<\/span> Resources ((SFR))  in the wake of the company's interim results. The copper-gold producer\/explorer has dealt with many of the problems that plagued the DeGrussa<\/span> underground mine ramp-up, posting a maiden first half profit of $79 million as operational expenditure declined. The commissioning problems that surfaced late last year caused a substantial sell-off in the stock and brokers have now come back with a more favourable<\/span> view.<\/p>\n

\n\tSo what produced the excitement? Other than the maiden profit, the company showed progress on problems with copper recovery and concentrate quality at DeGrussa<\/span>, which is part of the Doolgunna<\/span> project in Western Australia. Credit Suisse remains a little cautious, wanting an update on the zinc that is displacing copper in the concentrate, which attracts a penalty from smelters. On the plus side, underground mining remains on schedule and grade is reconciling well with reserve grade estimates. UBS believes the ramp-up problems at DeGrussa<\/span> are minor and the underground mine and plant should be running at nameplate capacity by mid year. The broker also expects DeGrussa<\/span> to produce around 75,000 tonnes<\/span> per annum for the first three years before reducing to 60-65,000 in the remaining 4-5 years. Moreover, recent exploration results are expected to add to underground resource and provide potential new mineralised<\/span> areas.<\/p>\n

\n\tCiti<\/span> likes Sandfire<\/span> because the company owns its land in the barren WA sands (no trees to contend with) and has a direct interest in the mine. The broker also highlights the potential for continued exploration success, given the VMS-style nature of the deposit. With the worst of the commissioning problems now over, Deutsche Bank has upgraded the stock but notes, while plant performance is improving, recoveries will be affected in the second half by the 24% of mill feed that is coming from transitional open pit ore. The broker expects a reserve\/resource update in April, possibly replacing mine depletion, and flags the underground drilling start in late in 2013 which will assess the C4<\/span>\/C5<\/span> lenses and assess depth potential. <\/p>\n

\n\tUBS finds, on an earnings multiple, the stock price is undemanding. Reconciling the latest result and using a mark-to-market for gold the broker has lifted earnings forecasts for FY13<\/span> substantially. Brokers have also welcomed the closing cash balance of $115m<\/span>, which provides Sandfire<\/span> with sufficient funds to start repaying its $380m<\/span> project facility. Credit Suisse, and JP Morgan for that matter, were a bit more concerned that no actual costs were divulged. Credit Suisse hesitates to make projections until actual performance can be assessed, hence the broker has upgraded to Hold with a $6.90 target. C1<\/span> cash operating costs are to be reported when plant commissioning and ramp-up is complete, presumably by the end of the June quarter. In the meantime, C1<\/span> cash cost guidance remains at US$1.20\/lb of payable copper production.<\/p>\n

\n\tJP Morgan has upgraded the stock to Hold, given improving operations and based on copper price expectations. The broker notes Sandfire<\/span> is most exposed to near-term copper price weakness given the front-loaded production profile. Citi<\/span> finds the project attractive from an operational perspective. Accepting that optimisation<\/span> work continues, the cost performance is uncertain and recoveries are below target, the broker notes the stock has fallen significantly and there is now value to be had. Citi<\/span> has upgraded to Buy with a $7.70 target, noting benchmark earnings multiples are at a discount to global peers. This reflects the elevated risk as Sandfire<\/span> proceeds with commissioning its one big asset.<\/p>\n

\n\tThose on the FNArena<\/span> database that ticked the upgrade box include UBS, Credit Suisse, Deutsche Bank, JP Morgan and Citi<\/span> but they're not all Buy ratings. Credit Suisse and JP Morgan upgraded to Hold from Sell. There are four Buy and three Hold in total on the database. The consensus target price is $7.79, revealing 13.7% upside to the last close. Targets range from $6.80 (JP Morgan) to $8.40 (UBS).<\/p>\n

\n\tSee also, Sandfire<\/span> Firing, On Both Production And Price<\/a> on October 31 2012.
\n\t <\/p>\n

\n\tFind out why FNArena<\/span> 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":"

After a maiden interim profit brokers decided the selling of Sandfire Resources had gone far enough. Five out of seven brokers have upgraded recommendations.<\/p>\n","protected":false},"author":17,"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\/61429"}],"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\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=61429"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/61429\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=61429"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=61429"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=61429"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}