FROM THE BROKING DESK
Some excellent news for mineral sands producers has come out. Iluka Resources has announced a 12% increase (to US$1,230/t) in its reference price for zircon for the next six months. Iluka usually only reports price increases around its quarterly reports; this interim announcement was made owing to the significance of the increase. This reflects the continuing strength in the zircon price, for which we estimate that Base Resources*† received US$800/t in FY17 (to June), and for which we currently forecast US$990/t in FY18. Zircon represents approximately 20% of Base’s (LON:BSE) revenue mix.
Jim Taylor has a new initiation piece out: Resolute Mining — Determined to Deliver Profitable Growth, 11 September 2017. (Believe me, that was quite an achievement given that our office had a new bunch of computers installed and a software upgrade over the weekend.) Jim has started coverage with a Buy rating and a target price of A$1.63. Resolute is an ASX-listed middle-tier gold company that could be looking to list in London at some stage. It is set for production of 300,000oz this year from operations in Africa and Australia.
Resolute (ASX:RSG) is a mid-cost producer with ongoing programmes that are planned to raise capacity to 400,000oz pa in FY19. There’s also a potential development project that could increase this to 500,000oz in FY20. We believe that share price performance will be driven by the de-risking of these development programmes and the de-bottlenecking of the company’s Syama plant in Mali. Also, the definition of a new discovery and the plans for its integration into Syama offers significant upside.
We base our A$1.63 target price on the SotP NAV of the company. Our NPV8, at a gold price of US$1,350/oz, is US$1,036m (A$1.77/share), equivalent to a current P/NAV of 0.70x. At gold prices of US$1,250/oz and US$1,450/oz, our TPs would be A$1.25 and A$2.00 respectively.