VSA Morning Miner, 02/07/20
NQ Minerals (OTCMKTS:NQMI)
NQ Minerals (OTCMKTS:NQMI) has announced that plant throughput has been increased to 150tph which implies 1.3mntpa against last years achieved 0.84mnt. We highlighted in our recent initiation that NQMI was on track to further increase production to an estimated c980kt in 2020F with capacity rising through the year, this has been achieved sooner than anticipated. With the full benefit of the 44% increase in capacity against 2018 felt in 2021F we continue to expect further positive impact on NQMI’s earnings performance.
Although plant throughput has been successfully increased, this understates the financial benefit given the significant positive progress that NQMI has had in terms of strengthening recoveries and concentrate specifications. Between H1 2019 and Q1 2020 NQMI increased lead and zinc recoveries from 33% to 48% and 28% to 43% respectively which, in our view, will significantly benefit earnings performance. We highlight that this performance level exceeds pre-production projections for the plant. We expect that NQMI will be able to broadly maintain the strong plant operating performance enhancing the positive earnings impact of the achieved increases in plant capacity. We continue to forecast a 43% YoY increase in revenue to £43m in 2020F underpinned by the increases in throughput and optimised operating performance to produce 40kt of lead concentrate and 24kt of lead concentrate containing total gold of 8.2koz and 1.1mnoz silver. We expect this to drive a strong reversal in group EBITDA, however, a refinancing deal remains key to unlocking profitability at the corporate level and enabling NQMI to generate free cash flow.
The NQMI operational team has shown yet again that it is capable of delivering strong operational performance and we believe that ultimately this will be reflected in the share price.
We reiterate our 21p target price and Buy recommendation.
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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