citigroup hold..jbwere outperform and bu

CITIGROUP has downgraded its rating of Minara Resources in the wake of the nickel laterite miner's poorer-than-expected March quarter.



Murrin Murrin nickel laterite operation

Minara announced last week it had produced 7921 tonnes of nickel in the three months to March 31, short of its forecast of 9000t, due to two electrical failures during the quarter.

Citigroup, which had predicted output of 8600t for the quarter, said it had downgraded its forecast earnings for Minara by 5%. That, in tandem with Minara's gain of around 30% over the past four weeks, had prompted the research and investment group to demote Minara from a Buy to a Hold.

However, Citigroup was encouraged by the fact the latest operational issues at the trouble-plagued operation were electrical, rather than related to the project's major production equipment.

"The first mishap was weather-related while failure of a high-voltage circuit breaker caused the second," Citigroup's analysts said.

"Importantly, neither seems to reflect poorly on the preventative maintenance program."

Citigroup's ratings downgrade brings it in line with UBS Investment Research's Neutral rating.

UBS said the production shortfall would have been more than offset by the high nickel price experienced during the quarter, while the mine should be still be able to produce 32,000-35,000t of nickel over the full year.

However, UBS remains concerned over the short-term health of the buoyant nickel price.

"While the fundamentals remain broadly supportive, we are wary of substitution risk and believe nickel is likely to retrace later in 2007," UBS said.

"The positive growth profile and strong cash flow that Minara offers could be offset by a turning nickel price, which is likely to negatively impact sentiment for nickel stocks."

Goldman Sachs JBWere analyst Ian Preston, meanwhile, is still holding a bullish view of and Outperform/Buy call on Minara despite the production shortfall and the company's recent share price gains.

"While production was a little lower than we expected during the quarter, we do not believe it derails the improving operational story unfolding at Murrin Murrin," Preston said.

"Also, we continue to have a positive view on nickel and highlight that spot earnings suggest earnings upgrades for Minara are likely over the coming months."

Shares in Minara rose 19c to $8.29 in morning trade today. Minara was changing hands at just over $5.00 in early January.