Metro delivers record bauxite shipment in October

By Trevor Hoey. Published at Nov 6, 2019, in Mining

Metro Mining Ltd (ASX:MMI) has delivered a stellar bauxite shipping performance for the month of October.

The company shipped 504,000 wet metric tonnes of bauxite in October, the strongest monthly performance since operations commenced in April 2018.

This brings year-to-date shipments from the group’s Bauxite Hills operations to more than 2.7 million tonnes, leaving the company comfortably placed to meet management’s 2019 guidance which is in a range between 3.3 million tonnes and 3.5 million tonnes.

Metro Mining is comfortably placed to meet management’s 2019 guidance which is in a range between 3.3 million tonnes and 3.5 million tonnes.

Commenting on the group’s October performance and the implications for the remainder of 2019, managing director Simon Finis said, “The mining and shipping results are now consistently performing at or above our budget requirements, reflecting enhanced operational knowledge and experience.

‘’I anticipate a strong finish to the 2019 operating season and Bauxite Hills remains on track to meet the production and shipping guidance of 3.3-3.5 million WMT”.

It also augurs well for 2020 as it points to the potential to significantly grow production and shipments in that year.

Morgans 12 month share price target implies upside of 200%

Due to the monsoon conditions, Metro Mining ceases shipments each year between January and March inclusive.

This means the company generates its full-year revenues over a period of nine months.

If the company were to regularly achieve shipments in line with its October operations between March and December inclusive this would equate to approximately 4.5 million tonnes in 2020.

Morgans resources analyst Chris Brown ran the ruler across the stock just last week, substantially increasing the group’s share price target from 26 cents to 35 cents, representing a premium of nearly 200% to Tuesday’s closing price of 12 cents.

This price target is backed up by sound financial projections that point to a net profit of $42.1 million for the 12 months to December 31, 2020, representing earnings per share of 3 cents, nearly double his earnings per share estimates for fiscal 2019.

This would place the company on a PE multiple of 11.6 (currently trading on 2020 PE of 4) relative to Brown’s price target, seemingly conservative for a company that is forecast to generate compound annual earnings per share growth of 60% between 2019 and 2021 inclusive.

Brown is forecasting production to increase a further 25% in fiscal 2021 to 5 million wet metric tonnes. However, as with all broker coverage, it remains a speculative projection.

Production is forecast to increase a further 25% in fiscal 2021 to 5 million wet metric tonnes.

In October, Metro announced completion of the definitive feasibility study for stage II expansion of the Bauxite Hills mine, confirming the economic benefits of expanding the mine to an annualised rate of 6 million wet metric tonnes.

Consequently, strong growth should continue to be achieved as the company scales up production, effectively reducing unit costs and improving margins and profitability.

It appears to be just a matter of when rather than if Metro Mining experiences a significant share price rerating.

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