South American Ferro Metals Limited (SFZ) - BUYRain impacts...

South American Ferro Metals Limited (SFZ) - BUY

Rain impacts production

A "1 in 100" rain event in the Brazilian state of Minas Gerais impacted production at Ponte Verde, reducing saleable product 13% on the September Q. Mining improved despite the rain, increasing 12% which allowed SFZ to opportunistically sell an additional batch of ore and fines, maintaining its positive cashflow. The decision will be made in the current Q on whether to commence the BFS to ramp up to 6-10Mtpa. We retain our BUY recommendation with a $0.67/share price target.

Rain hinders production. Beneficiated production decreased 13% from 124kt in the September Q to 108kt in the December Q due to heavy rain. Processing for the first half of the March Q will also be hindered due to water logging of the ROM stockpiles. We estimate beneficiated production of 160kt for the March Q.
Concentrator set back by a month. While the construction of the concentrator commenced on schedule, the rain has delayed completion by 1 month. Once in operation, the concentrator will produce ~200ktpa of concentrate from the unsaleable fines material. Domestic concentrate prices are circa $45/t.
BFS and resource expansion to be approved in the March Q. A BFS for the planned ramp up to 6Mtpa-10Mtpa is due to be approved in the March Q. A drilling programme to increase the maiden JORC resource of 231Mt @ 44%Fe will also due for approval in the Mach Q and will underpin the production ramp up.
Strengthening balance sheet. SFZ recorded its second consecutive quarter of positive operating cashflow and has $7.5m cash and no debt.
Catalysts. (1) BFS approval in March Q (2) Resource expansion drilling in March Q (3) Concentrator completion in April