Botswana shaping up for Sandfire, says BofA, as it lifts price objective to $6

The recently acquired Botswana copper assets are shaping up as the key future story for mid-tier base metal producer Sandfire Resources (ASX: SFR), according to an updated research note by BofA Securities
7th August 2020
Resources Rising Stars

The recently acquired Botswana copper assets are shaping up as the key future story for mid-tier base metal producer Sandfire Resources (ASX: SFR), according to an updated research note by BofA Securities, part of the global investment bank Bank of America.

According to BofA analyst Sophie Spartalis, the company’s recent June quarterly report revealed that Botswana was “shaping up better” on exploration with “significant potential” for increased scale through the development of a processing hub strategy based around the T3 copper development project.

“Feasibility work for T3 is nearing completion with expected market release late 2020,” Spartalis wrote. “SFR continues to work on a lower CAPEX option to expand processing to 5.2Mtpa (vs. 3.2Mtpa base case).

“This underpins our BUY rating and we increase our price objective to $6.00, reflecting a 1.1x premium to our DCF as we see valuation upside from potential commodity price gains and Botswanan exploration.”

Spartalis was less impressed with the company’s production outlook for its flagship DeGrussa copper mine in WA, with FY21 guidance of 67-70kt being “softer than anticipated”, despite the company having posted record FY20 production of 72kt of copper and 42koz of gold, generating revenue of $657 million.

Exploration remains a key driver for the Company, with FY21 exploration guidance of $41 million, $24 million allocated to DeGrussa and $13 million to Botswana.

“Botswana is the most exciting and exhibits the most potential in the portfolio,” she said.

In other coverage of Sandfire’s quarterly results, Perth broker Euroz Securities reiterated its BUY recommendation with a $6.40 price target.

Euroz analyst Andrew Clayton says DeGrussa continues to generate strong free cash with an “impressive” FY20 production result.

“Whilst mine life at DeGrussa is ~2 years, over this period we estimate it will generate operating free cash flow of ~$550 million which, combined with current cash of $291 million is approximately the current market capitalisation,” he said.

“Clearly, the key is to be able to build T3 and have this up and producing before DeGrussa finishes so there is no hiatus in production. We believe this is possible and the exploration results at A4 and other satellites suggest a camp-scale opportunity.”

Other broker notes released in the wake of last week’s quarterly report included Citi, which slightly reduced its price target to $5.40 and Credit Suisse, which has an Outperform recommendation and $5.50 target price (saying the stock still offers “value appeal”).

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