Goldman Sachs has put Sandfire (ASX: SFR) on the chopping block with a Sell rating and a 12-month price target of $5.80.
Surprisingly, Sandfire has managed to hit that price target in less than 24 hours, down -13% to $5.84 in afternoon trade.
The sharp selloff comes off the back of significant volume, with 8.6m shares traded compared to a 20-day average of 2.4m.
Sandfire acquired the Spanish MATSA Mining Complex in February for US$1.87bn.
MATSA is a large, high-quality, low-cost and long-lift underground copper operation, poised to transform Sandfire into one of Australia’s largest copper focused producers.
In just a few months, Sandfire has already downgraded MATSA's production and cost guidance by circa 5-10% worse than what was provided at the time of the acquisition.
Goldman Sachs lowered its FY22-24 earnings guidance by -9% to -15% mostly on lower production and higher costs coming out of MATSA.
Other factors included:
Sandfire is pricing a long-run copper price of US$4.6/lb, much higher than Goldman's forecast of US$4.1/lb
Sandfire's current operational Degrussa copper/gold mine has around 12 months left of production
Execution risk for new Botswana/Motheo copper mine, forecast to come online in the second half of 2023
MATSA expansion and cost risks
Sandfire now trades at a price-to-earnings (P/E) of just 7.5. Whereas copper rival Oz Minerals (ASX: OZL) doubles its valuation, trading at a P/E of 16.
While the recent production cuts mean that Sandfire might not be able to take the top copper spot away from Oz Minerals, today's selloff does seem overly harsh taking into consideration the bullish outlook for copper and the transformational nature of the MATSA acquisition.
Goldman noted upsides for Sandfire included:
Higher copper/zinc prices
Lower costs and capex
Higher grades and mine life extension
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