Buy, Sell, Hold

Buy, Sell, Hold: FMG, Sandfire and General Mining


Sandfire Resources (SFR)
Analyst: Matthew Keane, Patrick Chang, Argonaut Securities
Recommendation: Buy (previously hold)
Price target: $A6 (previously $5.65)
Thursday’s close: $5.30
Reason: Monty looks mineable
Comments: Sandfire Resources (SFR) released the maiden resource for the Monty deposit with 1.05Mt at 9.4% copper and 1.6gpt gold for 99,000t contained copper and 55,000oz contained gold. Importantly, 99% of the resource is in the indicated category, able to be incorporated into reserves with further metallurgical, mine planning and geotechnical studies. The resource is contained within seven sulphide lenses, two of which contain 87% of contained metal. Argonaut is now confident that Monty will be incorporated into the DeGrussa life-of-asset plant. We have modelled around 90% reserve to resource conversion with 10% grade dilution. Our assumptions include $100 million capex to first stoping, with development commencing mid-2017 following permitting and grant of a mining lease. We ramp-up production from Q3CY18 with Monty contributing a maximum 40% of the DeGrussa ore blend. Our opex assumptions are in line with DeGrussa with additional transport costs for ore haulage (estimated 10c/t/km). Monty accretes 12% to our NPV valuation for DeGrussa. The Monty discovery increases the probability of the Doolgunna region containing a camp of high tenor copper VMS style deposits. Exploration is continuing both along the prospective stratigraphic horizon and down dip of Monty. In the lead up to the Monty resource there has been a lower focus on regional prospects such as the Homer Trend, Homestead and Southern Volcanics. However, we anticipate a ramp up of regional exploration in the next 12-18 months. SFR’s FY16 Doolgunna budget is around $20 million. We believe a SFR may look to acquire the remaining 30% of the Talisman joint venture in the near to medium term. Argonaut upgrades to a buy recommendation with a revised target price of $6 (previously hold with a $5.65 target price). Our price revision results from the incorporation of Monty into our DeGrussa model.