VSA Morning Miner, 09/07/20
NQ Minerals (NQMI:PZ)
NQ Minerals (NQMI:PZ) has reported robust production results for Q2 2020 which implies a strong first half. The recent announcement that throughput capacity has been increased by 44% in recent weeks indicates that production is likely to be weighted towards H2 2020. That said, lead concentrate production of 8.8kt was up 61% YoY and 7.8% QoQ whilst zinc concentrate production was up 19% YoY although down 8% QoQ. The company’s operations have been unaffected by COVID-19, with Tasmania only experiencing a small number of cases.
Despite the weakness in zinc pricing and lead pricing in the early part of the year, a modest recovery in prices has limited the impact of the late Q1 shock. Consequently revenue in H1 2020 of A$30m was flat YoY which in the current environment is a strong achievement in our view given that zinc prices of US$2,051/t in H1 2020 averaged 23% lower YoY than the corresponding prior period whilst lead prices of US$1,765/t were 10% lower in the same period. At the asset level NQMI continues to deliver profitable performance achieving Operating profit of A$12m in H1 2020.
NQ Minerals benefitted from its gold and silver credits contained within the lead concentrate in particular. In Q2 2020 gold production of 1.2koz was up 13% QoQ owing to stronger concentrate grades and throughput. Higher throughput was offset by modestly lower silver concentrate grades leading to production of 200koz in Q2 2020 which was down 2.7% QoQ. Processed grades from tailings were stable overall across lead, zinc, gold and silver. Lead recoveries of 46.6% (-1.38%) were marginally lower QoQ although concentrate grades of 37.94% were higher (+0.53%). Zinc recoveries were unusually weak at 34.9% (-7.65%) QoQ which impacted quarterly output although we expect a normalisation in H2.
Given the weighting towards H2 2020 with the further ramp up in production, we maintain our forecasts which indicate a significant uptick in revenues YoY to £43m and EBITDA of £10m. We anticipate an improvement in zinc recoveries and ongoing strong performance elsewhere in the plant.
We reiterate our Buy recommendation and 21p target price.
Oliver O'Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
Paul Renken, Senior Geologist | T: +44 (0)20 3005 5011 | E: prenken@vsacapital.com
VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com
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