Bell Potter estimate $100m hole

Sandfire Resources NL (SFR)
Monty grades highlight potential

Drilling result the best ever at DeGrussa
SFR recently released the latest round of drilling results from the high grade copper-gold discovery at the Monty Prospect. These included TLDD26, 21.6m at 34.4% Cu and 0.4g/t Au from 339.4m down-hole (286mbs). This is the best ever drilling result returned from primary sulphide mineralisation anywhere on the DeGrussa project.

We estimate in-situ value of $100m on this hole alone
We apply what we view as several conservative assumptions to the calculation of the in-situ value of the copper in ore that will likely be attributed to TLDD26. We estimate there could be at least 41.4kt of ore grading 34.4% Cu and containing 14.3kt of copper. At current spot copper prices and exchange rates that equates to around A$103.1m of in-situ value: more than enough to fund the CAPEX of a satellite project.

Update our notional resource estimate and mining scenario
In reviewing the latest results we tightened our notional resource estimate to 1.2Mt-1.4Mt and increased our grade assumption to 12% Cu for 144-168kt contained. Our mining scenario considers mining Monty at 300ktpa and displacement of lower grade feed from the DeGrussa mill. The result is a material increase in grades, production and earnings. We calculate an additional $402m over our base-case assumptions for SFR. We remain of the view that Monty is likely to be developed as a matter of priority.

Investment thesis – Buy, TP$8.10/sh (from $7.30/sh)
We do not yet incorporate any potential production from Monty into our formal modelling so there are no changes to production and earnings forecasts. We do however reflect the valuation uplift of our latest analysis with an increase of $130m to our exploration valuation to $480m. This increases our NPV-based, sum-of-the-parts target price by 12% to $8.10/sh. SFR remains our preferred ASX-listed copper producer due to its strong operational track record, cash generation, improving balance sheet and leverage to exploration success at the Springfield JV.