Goldman Sachs upgrades Sandfire to BUY with $7.60 price target

Heavyweight global investment bank Goldman Sachs has upgraded its recommendation for mid-tier copper producer Sandfire Resources
16th April 2021
Heavyweight global investment bank Goldman Sachs has upgraded its recommendation for mid-tier copper producer Sandfire Resources (ASX: SFR) from neutral to a BUY on the back of higher base metal forecasts, raising its price target to $7.60-a-share.

The news prompted an immediate 6% lift in Sandfire shares yesterday to over $5.80, though still well short of the revised Goldman Sachs target.

In a new Australia Metals & Mining report which included upgrades for several base metal producers, Goldman Sachs has increased its EBITDA forecasts for Sandfire for FY21-23 on higher copper price forecasts, with a 31% lift in its target price from $5.80 previously.

The investment bank says Sandfire has a “compelling valuation” at long-run US$4/lb copper with the new T3 project in Botswana valued at $662 million or $3.70/share and the company’s existing DeGrussa operation in Australia at $463 million or $2.60/share, while still excluding the Black Butte project in the USA.

Goldmans says the Botswana project will extend company earnings beyond 10+ years and generates an Internal Rate of Return of 33% at US$4/lb long-run copper.

Sandfire recently released an optimised study for T3 which outlines an initial 3.2Mtpa mine and mill over 12.5 years producing 30ktpa of copper and 1.1Moz silver, with the option to increase the plant throughput to 5.2Mtpa with inclusion of the new A4 discovery.

The report assumes a large 4.8Mtpa mill and models 55Mt of reserves, resulting in a 13.5 year life-of-mine producing on average 35ktpa copper and 1.4koz silver.

The study outlined a post-tax NPV of 7% of US$206 million with an IRR of 21%, which assumes a long-run copper price of US$3.16/lb.

“We model a larger and longer life operation, and at US$4/lb long run copper, we value the project at A$662 million with an IRR of 33%,” the Goldmans report adds.

Goldmans forecast a +60% growth in EPS for the existing DeGrussa copper mine into FY22, with EPS falling in FY23 as production rolls off and T3 construction/ramp-up begins in Botswana.

“There is the possibility that SFR may look at inorganic M&A to help bridge the earnings gap, in our view,” Goldmans said.

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