Sandfire expects "further upside" for copper following record half-year earnings

Despite achieving record earnings in the first-half of FY22, as copper prices sat around 11-year highs, Sandfire (ASX: SFR) was down -2.86% in early morning trade.

Financials at a glance 

• Revenue of US$311.8m, up 22%

• Copper sales of 32,422 tonnes, up 5% 

• Gold sales of 14,462 oz, down -22% 

• Net profit of US$55.2m, up 24% 

• Interim dividend of 3 cents per share 

Bullish copper prices 

Sandfire earnings were bolstered by a consistently elevated copper price of US$9,000 to US$10,600 per tonne throughout the reporting period.

From an operational perspective, the company's DeGrussa Project in WA was producing in-line with forecasts and projected to meet its FY22 guidance including:

• 64,000 to 68,000 tonnes of copper

• 30,000 to 34,000 oz of gold

Eyes on growth

Sandfire completed its US$1.87bn acquisition of the Spanish MATSA Mining Complex in February.

MATSA comprises three significant underground mining operations and a world-class processing facility for copper, zinc and lead.

Sandfire expects its FY22 results to include five months' contribution from the MATSA Operation.

“This world-class asset immediately elevates Sandfire into the global base metal league and makes us one of the largest copper-focused producers on the ASX, providing our business with a new long term cornerstone asset that will help drive our growth for many years to come,” said Managing Director Karl Simich.

Source: Acquisition of the MATSA Mining Complex Presentation

Outlook 

“The combination of surging demand from the renewable energy and EV sectors, together with declining metal stockpiles and supply side tightness exacerbated by global supply chain instability, has seen the copper price surge to new highs – with further upside expected," said Simich.

Sandfire expects the next two years to be transformational for the business, given the inclusion of MATSA and organic growth opportunities.

The DeGrussa Project will be phased out in the first quarter of FY23 and replaced by new production from the Motheo Copper Mine in Botswana. The new mine will ramp up towards full production in FY24.

Over the long-term, Sandfire has an aspirational vision to more than double production towards 300,000 tonnes of copper per annum by the end of this decade.

Sandfire 12-month share price chart

Consensus on Sandfire is Moderate Buy.

Based on Morningstar's fair value of $7.82, the stock looks undervalued.