Sandfire Resources Limited

SFR Details

Q2FY22 Financial and Operational Highlights: Sandfire Resources Limited (ASX: SFR) is involved in gold and base metal exploration. Recently, the company released its Q2FY22 results, wherein it recorded copper and gold production of 18,675 tonne and 8,739 ounces against 15,946 tonne and 7,515 in September 2021 quarter, respectively.

• The company had wrapped up the maiden mineral resource estimate for the Old Highway Gold Deposit.
• In addition, the studies are ongoing to evaluate potential development options including producing gold through modification of the existing DeGrussa processing infrastructure.
• The company raised $1,248 million via the accelerated non-renounceable entitlements offer in October 2021. SFR closed Q2FY22 with a cash balance of $1,654 million.

Copper and Gold Production (Source: Analysis by Kalkine Group)

Approval from the Spanish Government: Recently, the company has received approval from Spanish Government authorities for the US$1,865 million acquisition of the MATSA Mining Complex. As a result, the transaction is now unconditional and will proceed toward completion on or around 31 January 2022.

Key Risks:

• Commodity Risk: The company’s business could be impacted by any negative movement in prices of the commodities globally as it generates a major portion of revenue from the sale of copper and gold.
• Climate Risk: SFR’s operation could be impacted due to a change in climate, which may lead to a temporary suspension of mining.

Outlook: For FY22, the company expects to produce copper in the range of 64-68kt and gold in the ambit of 30-34koz at expected C1 costs of between ~US$1.00-$1.20/lb.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company is trading above its 52-week low-high average of $4.334 - $7.380, respectively. The stock has provided returns of ~9.20% and ~24.41% in the past one and three months, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 uncertainties and commodity price risk. For the purpose of valuation, peers such as Dacian Gold Ltd (ASX: DCN), Resolute Mining Ltd (ASX: RSG), and OceanaGold Corp (ASX: OGC) have been considered. Considering the expected correction, solid rally in the past few months, current trading levels, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $7.180 as on 21 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

SFR Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

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