Ferro-Alloy Resources Ltd (LSE:FAR) shares were given a boost by a Liberum note that reiterated a ‘buy’ rating with a price target five times the latest share price.
Follow its year-end trading update, where revenue and profitability at the secondary operation were hit by a plunge in metal prices and reduced production, the shares sank by a third to below 5p.
Ferro-Alloy also flagged that the feasibility study (FS) on Stage 1 of the exciting flagship Balausa project is “likely to be delayed” beyond the April 2024 target.
Liberum analyst Yuen Low noted that in relation to metal prices, the company is seeking to maintain profitability by renegotiating concentrate costs and other contractual terms.
He said there was a silver lining from the reduced production.
The concentrates are from a range of sources with different metal contents, so require different processing procedures.
The need for periods of experimentation, and longer residence times than the previous feed resulted in output being lower than hoped.
“The silver lining is that it appears that some of the new types of concentrates could prove more profitable to process (while maintaining product quality),” the analyst said.
Liberum, which is house broker to the company, has tweaked its forecasts and valuation based on the trading update.
There was only a minor impact on the 2024-based valuation, which is dominated by Balausa, where revised timing of the FS is to be provided by the company when clarification has been provided by the project’s service providers.
“Having already pushed out our Balausa timeline by six months in Oct’23, we have opted against a further push-out for now, on the assumption (pending company guidance) that the FS delay proves to be in the order of 3-4 months (or less).”
The updated base-case sum-of-the-parts valuation is 157p per share on a fully diluted basis, or 68p per share excluding Balausa’s by-product contribution.
A short-term risked pre-FS target price of 34p per share was trimmed from 35p, with the analyst saying this is “conservatively based on the latter, to highlight the value inherent simply in Balausa’s vanadium” and represents 446% upside potential from the last closing price.