Emerging graphite producer, Magnis Resources, appears to have slipped back into buy territory in the last fortnight with its share price coming off an all-time high of $1.12 to close at 95.5 cents yesterday. It is possible that a run in the gold price last week followed by some strengthening in base metal prices this week has resulted in investors taking money off the table and investing in those sectors. However, Magnis Resources story just keeps getting better, and while its share price has been coming off it received a letter of intent from the Tanzania Port authority allowing the company to progress to the next phase of acquiring a long-term lease at the export port of Mtwara. The company’s Nachu graphite project is located in Tanzania where it has had a trouble-free run during the exploration and development stages. The negotiation of power supply and port arrangements further demonstrates the government support for the project. While one could look at the circa five-fold share price accretion over the last 12 months and come to the conclusion that it is time for the company to take a breather, fundamentally it still looks strong with further upside to come. As a backdrop, Market Wire first covered Magnis resources at the end of March (Magnis BFS indicates robust economic’s) when its share price was 35 cents. By the time a follow-up report was released on May 24 (Bell Potter sees 50% upside in Magnis) the company’s share price had increased more than 50% to 56 cents. In the ensuing three weeks it doubled to hit an all-time high of $1.12. In a note released this morning by Bell Potter, analysts increased the company’s share price target from 83 cents to $1.45, implying upside of circa 50% to yesterday’s closing price. The broker highlighted that the port arrangement as well as a recent power infrastructure agreement further de-risked the Nachu project. By comparison with many other companies looking to enter the graphite space, Magnus will come into production relatively early with Bell Potter forecasting a maiden profit of $45 million in fiscal 2018, representing earnings per share of 7 cents. This implies a PE multiple of 13, relatively conservative given the company’s outstanding growth prospects.
MNS Price at posting:
93.5¢ Sentiment: Buy Disclosure: Held
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