Euroz Hartleys re-initiates on Sandfire with $10 price target

Perth-based broker Euroz Hartleys Ltd has re-initiated research coverage of mid-tier copper miner Sandfire Resources (ASX: SFR), setting a $10 price target – well north of its closing price last night of $6.70.
9th July 2021
Resources Rising Stars

Euroz Hartleys analyst Steven Clark notes a number of key developments since the cessation of coverage on October 2020, including a 41 per cent appreciation in copper prices from US$3.06/lb to US$4.30/lb, an increase in its copper price forecast and a magnification of the limited ASX exposure to copper production.

He says Sandfire has also significantly progressed the development of its Tshukudu Operations in Botswana, with the completion of a Definitive Feasibility Study in November 2020 on the T3 project outlining average production of 31ktpa of copper over a >12-year mine life and the completion of a maiden resource for the nearby A4 deposit.

Euroz Hartleys models an uplift in cash and liquid investments to $622 million at July 2021, implying an enterprise value for the stock of $630 million.

The broker also estimates an FY22 free cash contribution of $415 million from its DeGrussa Operation in Australia on an assumed copper price of US$4.00/lb, noting that the company is “war-chested for life after DeGrussa”.

Together with a net present value of $3.14/share for Tshukudu, assuming an expansion of the Company’s new Motheo Copper Mine from 3.2Mtpa to 5.2Mtpa, Euroz Hartleys has increased its valuation of the stock by 36 per cent to $12.54 per share at spot commodity prices.

The report also notes “multiple catalysts” for a potential re-rating in the short term.

These include the award of the T3 Mining Licence (which occurred earlier this week), the June 2021 quarterly and annual results, a maiden Indicated Resource for the A4 deposit (expected shortly), exploration results from the Motheo Project and a maiden JORC Resource and Scoping Study for the Old Highway gold deposit near DeGrussa.

Euroz Hartleys estimates that Sandfire will produce 69.9kt of copper for FY2021 at a C1 cash cost of US$0.78/lb, underpinned forecast revenue of $774 million and EBITDA of $508 million.

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