jbwere downgrade oxr

Goldman Sachs downgrade

Oxiana stock rating downgraded
By: Peter Gonnella
Posted: '21-JUL-04 03:57' GMT © Mineweb 1997-2004


Goldman Sachs JB Were (GSJBW) has downgraded its short-term recommendation for emerging Aussie-based gold and copper stock Oxiana [ASX:OXR] from “buy” to “market perform” following lower than expected gold grades and output in the June 2004 quarter.

Oxiana produced only 31,350 ounces from its flagship Sepon operation in Laos with cash costs averaging US$197 per ounce in the three-month period and as a result GSJBW analyst Ian Preston trimmed his previous calendar 2004 profit forecast by 11 percent to A$20 million.

The 25 percent and 37 percent decreases in grade (versus the March 2004 and June 2003 quarters, respectively) to 3.26g/t are “of concern to us given that it signifies an undercall on grade (against mine plan) whereas previously the company had experienced an overcall,” highlighted GSJBW analyst, Ian Preston. As a reference point reserve head grade is 3.4g/t. “In our view this remains the key short term risk – whether the grade undercall will be rectified or remain an ongoing issue.

“Near term, our short-term market perform recommendation is supported by the positive exploration news flow that we expect from both gold and copper,” said Melbourne-based Preston.

Meantime, Oxiana reported its gold plant expansion designed to increase annual production from about 160,000oz to 230,000oz and the US$230 million Sepon copper development are on track for completion in December and early next year, respectively.

However, “despite the (projected) volume growth for both gold and copper, our long-term recommendation has been reduced to hold,” added Preston. “This is predominantly due to the recent share price appreciation which has resulted in the stock now trading at a significant premium (of about 20 percent) to our base case valuation (of A$0.73).”

Shares in Oxiana dropped 3.5 percent today (Tuesday) to finish at A$0.84.