Yovich & Co. Market Update - 3 November 2015

Nov 3, 2015 | Commentary

Changes in Market



Market Themes

  • The NZX 50 Gross index was up 7.03% for the month of October, a very strong result compared with the Aussie market which was only up 4.03%.

  • High yield stocks such as Spark, Heartland New Zealand & Mighty River Power were all up over 10% for the month.

  • Interest rates were left unchanged at 2.75% at the OCR meeting held on the 29th of October. Expectations that there will be another cut before the end of the year with the statement “some further reduction in the OCR seems likely”.

  • U.S Markets have gained 5 weeks in a row on strong corporate earnings, a rally in the oil price and a subsequent move on the energy stocks.

  • The NZ Dollar remained strong against the Aussie, touching 95 cents last week and also had a good run early in the month against the USD as interest rates remain at all time lows in the world’s largest economy.

Investment News

Sheffield Resources (SFX.asx) - Pre-feasibility Study Update

The big positives from this report are that the capital cost of building the mine has been reduced and that the mine life continues to lengthen. It would have been good to see that production could have been brought forward, but with commodity prices remaining low, it might be better timed for production to start later in the commodity price cycle. The main points in the report are as follows:

  • Pre-feasibility Study Update confirms low risk, high margin, long life mining project.

  • Pre-production capital reduced by 26% to A$271 million.

  • Capital payback period reduced to 3.4 years.

  • Mine life extended to 40 years with considerable exploration upside.

  • Revenue A$11.8 billion over Life of Mine (“LOM”).

  • Operating cash flow A$6.0 billion (LOM), A$149 million (annual LOM average).

  • EBITDA A$5.4 billion (LOM), A$135 million (annual LOM average).

  • Revenue to cash cost ratio 2.02:1 (LOM).

  • 100ktpa zircon, 382ktpa high grade sulphate ilmenite production (LOM average).

  • Primary zircon is premium grade and suited to the ceramics sector.

  • Upgraded ilmenite has superior qualities which will assist in displacing others in the market.

  • Targeting commissioning in 2018 coinciding with an expected global supply gap.

The two research analysts that I follow who cover SFX both have target prices above the current share price of 56 cents. Macquarie has a price target of 60 cents and Hartleys has a valuation of 77 cents and a 12 month target price of $1.21.

The full report can be found on the company’s website:

http://www.sheffieldresources.com.au/wp-content/uploads/2013/09/14-October-2015-Pre-Feasibility-Study-Update-Confirms-Thunderbird-as-the-World%E2%80%99s-Best-Undeveloped-Mineral-Sands-Project.pdf

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About the author



Jarrod Goodall



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Weekly Update Investment Shares Bonds Market Commentary Sheffield Resources SFX.asx



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