African Minerals Ltd (Price: 115p | Target: 189p | Rec: Buy) African Minerals’ Q1 production report was largely confirmatory, with all near-term and longer-term production targets maintained.

The company is progressing with the Phase 2 saprolite expansion as planned, with details expected by the end of June and a construction start expected this year, after the wet season.

The company offers good value under both Investec and consensus price assumptions, but clearly faces a headwind while the spot price continues to fall.

We maintain our Buy recommendation. * The company had already reported Q1 production of 5.3mt and sales of 4.6mt, with cash costs now reported at $37/t (Investec $36.3/t), with costs in the month of March as low as $34/t.

FY14E targets of 16-18mt at costs of $34-36/t are unchanged and in this regard the company appears well prepared for the coming wet season.

A clear positive is that net debt reduced by $82m to $391m, notwithstanding a $16/t lower realised price in Q1 vs.

Q4 ($61/dmt vs.

$77dm/t).

The proposed Tewoo investment, an important consideration in financing the Phase 2 expansion, reportedly continues to make progress. * We recently reduced our near-term (FY14E and FY15E) earnings, reflecting increases in our forecast moisture levels (from an average 8% to 10%) and increases in the penalties applied for deleterious elements and processing charges (up $2/t to $8/t).

This had the impact of reducing FY14E EPS from 31.3cps to 24.1cps and FY15E from 58.5cps to 51.0cps. * Our target price is based on a risked NPV, assuming a maximum production rate for Tonkolili of 24mtpa, including a Phase 2 expansion.

Key risks to the target price are the iron ore price, delivering on preliminary targets and securing funding to enable future growth.

The AMI share price has been impacted severely by poor sentiment given the falling spot iron ore price and appears very good value at our long-term price of $95/t price (versus consensus of c.$100/t and the current spot price of $97.5/t).
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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