Yovich & Co. Weekly Update - 28 April 2014
Apr 28, 2014 | Commentary
April 28th 2014
This Week’s Themes
The short week meant that there was very little news flow but the Tech stocks were still volatile. The market ended the week close to all time highs.
Record low interest rates across the Tasman helped the Australian market to close the week at a six year high.
The Tech sector in the U.S is still bearing the brunt from investors switching to defensive stocks after a very strong run from growth stocks.
The contrasting Monetary Policy statements from the New Zealand and Australian Reserve Banks saw the Kiwi move higher against the Aussie.
Sheffield Resources – Scoping Study Proves the Economics of the Thunderbird Project.
The following has been extracted and summarised from the Hartleys Research document dated 14 April 2014. If you would like a copy of the full research please contact us and we can provide a copy to you.
Sheffield Resources Ltd has released the eagerly anticipated scoping study for the Thunderbird mineral sands deposit in northern WA. As anticipated, the project is enormous and has exceptional economics. The mine life is assumed to be 32 years with expectations that the eventual mine life will be considerably longer and is expected to generate an average of $140m of EBITDA per annum. Once in production, the project increases global zircon supply by 8% and increases global ilmenite by 4%, in today’s terms. Capital expenditure is very digestible at only $309m, including a $37m contingency, $38m engineering consulting cost and $15m for the additional study work. Hartleys pre-tax, unfunded, Net Present Value at the decision to mine (2016) is $700m. Hartleys funded Net Present Value today, post tax, and assuming dilution of around 138m new shares is $1.56 per share.
The mining operation is large (20.8Mtpa) and is expected to be via large dozers and scrapers. The project economics are relatively low risk given that the conventional processing will be optimised to maximise production of ilmenite and zircon and hence does not depend on rutile. The study assumes export from the Broome port, and capital expenditure includes a modest investment at the port. Other export options include Derby or potentially a new port. Both alternatives would incur additional costs, although we believe could be viable if necessary.
The Thunderbird deposit is a very significant mineral sands project. Like many world class projects, the pathway can actually begin to get easier as milestones are met, and expectations are exceeded rather than missed. Hartleys have increased their price target significantly to $2.00 (from $1.33) and have upgraded their recommendation to Buy (from Speculative Buy). Note that a near term risk is the current low cash position.
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