Richland Resources (LON:RLD) offers great value and offers further upside, according to Ambrian Partners, which maintains its ‘buy’ rating and has a 33 pence target on the stock.
Shares were last trading at 10.2 pence.
The broker, a part of RFC Group, issued a note after a recent site visit to Richland’s flagship tanzanite mine in Tanzania.
Analyst Craig Foggo pointed to the latest operating update, reported last month, in which Richland exceeded production guidance.
In the fourth quarter to December 31 2011, Richland made sales worth US$5.9 million, up from US$3.4 million in the fourth quarter of the prior year. It also produced 554,060 carats at an average grade of 58 carats per tonne in the quarter, and 2.38 million carats for the whole year at the same grade.
Foggo made the point that at £13 million, Richland has a market cap that is the same size as that of most low-end exploration companies on AIM, but operates a producing mine that has generated two consecutive years of positive profit and free cashflow
“Furthermore, the company has two projects to develop: an advanced Australian sapphire project and the Tanzanian tsavorite deposit within 20 kilometres of its existing operation in the country.”
The company holds an option over the Australian project, a previously operating asset with historic exploration and sales data.
“We believe this project can be quickly developed into a producing operation, leveraging off Richland’s existing sales distribution networks and management’s niche industry specialisation in gemstones and mining excellence,” the analyst said.
Foggo expects upside from moderate production growth, higher sales and growth initiatives.
The catalysts for the next 12 months include: the full-year financial results due before June, the listing on the Dar es Salaam stock exchange which is expected during the current first half, news on the Australian sapphire project, Asian gemstone pricing at the upcoming Hong Kong gem fair show and potential news of further advancement of the tsavorite project.