17th Sep 2014 13:51
LONDON (Alliance News) - VSA Capital is retaining its Buy recommendation on Sierra Rutile, but has decreased its price target for the stock, after the mineral sands producer swung to a loss in the first half of the year due to lower revenue and higher finance costs.
VSA Capital says it is continuing to value Sierra Rutile on a sum-of-the-parts basis, using discounted cash flow models to calculate net present values of Lanti Dredge, Lanti Dry and the development stage Gangama and Sembehun projects. Terminal and residual reserve values are also applied to the Sembehun and Gangama projects, respectively.
"Although management has yet to make a final decision on the Gangama project, which will depend on market conditions in terms of both rutile pricing and sales volume, our valuation assumes that Gangama will begin production in 2015, followed by Sembehun in 2016, as we expect the market to improve moving forward," VSA Capital wrote in a note to clients.
However, it has adjusted its financial models to incorporate an average rutile price of USD900 a tonne for this year and USD1,150 a tonne for next, a reduction from USD1,200 a tonne for both years in its previous calculations.
It now has a price target of 68 pence for the stock, down from 73 pence previously.
Sierra Rutile shares were down 0.6% at 33.30 pence Wednesday afternoon.
By Steve McGrath; [email protected]; @stevemcgrath1
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