Bell Potter has posted a 12th Month buy target for GBG at $1.30.. Some interesting insights
"Gindalbie Metals (GBG.AX - A$0.66) Buy Target: A$1.30 Moving towards production in 2012 • Karara project tracking to revised schedule GBG reported an interim loss of $13.6m in February. Despite the hematite operation being cash positive, the negative result was driven by an FX loss. However, the result is largely irrelevant, with the key issue for GBG in 2012 being the completion of the Karara magnetite project without further delays or cost overruns. According to the interim report, the project remains on track to make its first trial shipment in the September quarter 2012. The infrastructure is well progressed and should be available in the first half 2012, and the concentrator is in the SMP (structural, mechanical and piping) stage. • Funding uncertainty is weighing on the stock The project remains underfunded by $150-200m at current exchange rates, however this should be covered by additional debt if required. The interim report suggests that discussions have been held with China Development Bank on the matter. However, timing could be an issue, and if the Karara JV is not 100% confident that the funds will be available on time, it may need to seek alternative funding. Hence, we have considered a scenario where the current shortfall plus an additional overrun is covered by equity and find that the stock is still undervalued compared to our 12 month valuation for Stage 1, $1.10/sh. • Investment View - Maintain Buy on 12 month view GBG is trading at a discount to our valuation, presumably due to funding uncertainty. We believe this is a valid concern and do not expect the stock to re-rate until the project is complete which may not be until late 2012/early 2013. However, once the uncertainty is resolved, even considering the possibility of further dilution, GBG is undervalued. Our price target of $1.30/sh (previously $1.33), gives 80% weighting to the Stage 2 expansion to 15Mtpa, with potential for 16Mtpa, plus some value for the 100% owned Lodestone and Shine projects which could leverage off the significant infrastructure developed for Karara."
GBG Price at posting:
59.5¢ Sentiment: LT Buy Disclosure: Held
