Canaccord increases Metals X price target by more than 5% on back of strong December quarter

By Trevor Hoey. Published at Jan 27, 2017, in Features

Metals X (ASX: MLX) announced a strong result for the three months to December 31, 2016 on Wednesday with its Nifty copper mine located in Queensland turning cash flow positive earlier than expected and the group’s tin operations in Tasmania continuing to deliver robust margins.

Canaccord has subsequently increased its 12 month price target from 90 cents to 95 cents, implying upside of 15% to Wednesday’s closing price of 82.5 cents.

The broker said, “In our view, MLX presents as a unique, well capitalised exposure to base metals, trading at a discount to valuation which in the context of its peer group is an anomaly”.

While the Renison tin operations is a cash cow, Nifty is the asset with untapped potential and the prospect of exploration upside.

Canaccord is forecasting production of between 30,000 tonnes and 35,000 tonnes in fiscal 2018 at all in sustaining costs (AISC) of $2.50 per pound. This measures up well against the spot copper price which is currently approximately $3.50 per pound in Australian dollars.

The broker believes there is considerable potential to increase the company’s tin production as it makes progress with new ore sorting technology. Canaccord said, “Introducing ore sorting technology could increase the production profile by between 15% and 20% if adopted, and we expect MLX to make an investment decision in relation to this initiative in early 2017”.

The company is well positioned to invest in developing both its tin and copper assets with both operations cash flow positive and Canaccord expecting the group to finish fiscal 2017 with net cash of $82 million.

With all of its operations in Australia, Metals X is a beneficiary of the lower Australian dollar relative to the US dollar.

It should be noted that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

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