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Sierra Rutile impresses brokers with record production

Brokers reacted positively to the latest record-breaking set of results from Sierra Rutile
Sierra Rutile impresses brokers with record production
Sierra Rutile is now moving towards dry mining

There was no beating about the bush when Investec came to write up Sierra Rutile’s (LON:SRX) latest set of results in its morning commentary.

“Good set of results,” headlined the broker. “Sierra Rutile reported record fourth quarter production (up 25% year-on-year) and taking full year production up 10% year on year to 126,000 tonnes of rutile.”

That’s no mean achievement in a market that’s lately been very unforgiving to mining companies, and the result was duly recognised in some serious buying activity which took the share price up 12% to 17.5p by lunchtime.

Investec wasn’t alone in dishing out the plaudits.

Numis called the results “positive”, RBC maintained its “outperform” stance on the company’s shares, and SP Angel talked optimistically of a “good performance” historically and the potential positive impact of the move to dry mining at Gangama.

The move to dry mining remains on budget, with US$21mln currently spent, and on schedule for commissioning in the second quarter of this year.

That’s all to the good and should help costs continue on the downward trajectory that was initiated during 2015.

However, much depends on the commodity pricing environment, and here Sierra Rutile’s position is interesting.

Investec highlights that during 2015, realised prices for Sierra Rutile’s product dropped by only 2% and notes additionally that around 80% of projected 2016 output is already contracted to buyers.

So, although punters may be fretting that the overall market for mineral sands looks bleak, it’s clear that that outlook very much depends on which mineral sand you’re producing. Sierra Rutile’s rutile has buyers in place and pricing resilience, although as RBC concedes at the end of its analysis, until there is a recovery in the wider mineral sands space investor sentiment is likely to remain subdued.

For SP Angel though, the glass is half full rather than half empty. “Should the pricing environment improve, Sierra Rutile should be well positioned to benefit from this,” the broker said.

SP Angel also highlights what’s perhaps even more crucial for investors in a skittish market such as this - that relative to peers Sierra Rutile looks comparatively unencumbered by debt.

Debt has been the big bugbear of mining companies large and small over the past few months, but with Sierra Rutile’s strong cashflow profile combining with falling costs and lower debt, there certainly is a case to be made for the company relative to peers.

We’ll know more when the full financial results are released in March and guidance for the full year is given.

But for now it’s nice to know that one or two companies out there are still meeting expectations.


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September 30 2016

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