Materials

Investors rush to sell Sandfire after Goldman Sachs downgrade

Tue 01 Mar 22, 2:27pm (AEST)
iron copper steel

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Key Points

  • Sandfire's half-year FY22 results missed Goldman Sachs expectations
  • The MATSA acquisition has already faced production and cost downgrades
  • Goldman thinks Sandfire is too optimistic about long run copper prices

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.

MATSA acquisition misses the mark

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

Looking cheap?

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.

Sandfire and MATSA Production and Costs
Source: Acquisition of the MATSA Mining Complex Presentation

Goldman noted upsides for Sandfire included:

  • Higher copper/zinc prices

  • Lower costs and capex

  • Higher grades and mine life extension

  • Exploration success

Sandfire Resources Ltd (ASX SFR) Share Price - Market Index
Sandfire 12-month share price chart

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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