🕐03.07.14 - 11:27 Uhr

INVESTEC: AFRICAN MINERALS LTD : A RAY OF LIGHT IN A GLOOMY IRON-ORE ENVIRONMENT - BUY



African Minerals Ltd (Price: 73.0p | Target: Under Review | Rec: Buy) African Minerals today affirmed that its FY14 production guidance remains on target and a positive outcome on its Phase 2 haematite concentrator engineering study.

The key benefit of the latter is an ability to achieve 25mtpa of higher quality production until at least 2020, deferring the high level of capital required to develop the main Phase 2 saprolite concentrator.

We retain our Buy, while our NPV-based target price and earnings are under review, pending an update to the model. * The company exported 4.5mt in 2Q, taking 1H sales to 9.1mt.

This is ahead of our assumed 8.7mt, but the company confirmed FY14 guidance of 16 18mt so our assumed 17.7mt remains in line.

AMI also shipped its first self-arranged CFR cargo, which provided a modest $1.1/t saving on $20/t shipping costs. * The engineering study has determined that, for minimal capex ($311m), AMI should be able to produce 25mtpa of product (14mtpa of current DSO product plus 11mtpa of high-quality concentrate) from late next year until at least 2020, deferring for a number of years the large capital lump sum (quantum unknown, $1bn plus was expected) required to build the Phase 2 saprolite concentrators.

The higher quality blend should also result in a significant lift in received price (by as much as $30/t) for a comparatively modest lift in operating costs ($4/t). * This is positive for AMI.

Even if only half the level of the planned operating margin expansion is achieved, it will be a significant lift in operating margins for the company.

Importantly, the capital required for this intermediate phase is achievable.

While AMI still faces the full Phase 2 capital hurdle at a later stage, it receives some breathing space and gives it ample time for the Tewoo transaction to complete (which would assumedly cover AMI’s share of the Phase 2 capital), assuming it will.
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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