FY13 results improve visibility
Having delivered solid FY13 results, African Minerals Ltd (AMIq.LSE) guides 2014 sales growth of 32-49% year-on-year to 16-18Mwmt and C1 cash cost reduction to US$34-36/wmt from US$44/wmt in 2013. While visibility on the iron ore price performance remains low, based on conservative earnings estimates AMI’s stock trades at a reasonable 2014e EV/EBITDA of 3.6x.
Solid FY13 results improve visibility
AMI reported FY13 revenue of US$869m compared to US$287m (capitalised) in 2012 on the back of an almost threefold increase in sales to 10.8Mdmt. The realised price of US$78/dmt compares to the 58% Fe benchmark of US$119/t, with the differences primarily arising from the freight and quality/off-take discounts. Headline EBITDA came in at US$203m (US$170m adjusted for deferred income) versus a US$27m loss in FY12, while the C1 cash cost was US$44/wmt (US$50/dmt). The bottom line was affected by non-recurring items totalling US$115m and US$86m in net finance costs, bringing the net loss to US$54m.
2014 guidance: Higher sales, lower costs
AMI is guiding FY14 sales of 16-18Mwmt, a healthy year-on-year growth of 32-49%, and a C1 cash cost of US$34-36/wmt. Given the reported Q114 production and sales of 5.2Mwmt and 4.6Mwmt respectively and assuming better wet season management, the company appears to be on track to achieve the 20Mtpa run rate. This is expected to drive the C1 cash cost towards the US$30/wmt level.
Balance sheet looks strong
AMI’s FY13 net debt stood at US$461m, implying a reasonable net debt-to-LTM EBITDA ratio of 2.3x. Out of the overall cash of US$362m, some US$305m was restricted for use in the expansion of the Tonkolili project.
Valuation: Downside risk to consensus
While AMI trades at an undemanding consensus 2014e EV/EBITDA of 2.6x, the recent weakness in the iron ore pricing suggests the risk to consensus estimates are on the downside. At the spot iron ore price of US$105/t (58% Fe), wet sales of 18Mt and C1 cash cost of US$34/wmt, AMI’s FY14e EBITDA would come in at around US$340m. This would put the stock on a more conservative, but still attractive multiple of 3.6x. Overall, despite the sluggish start to the year, we expect China’s economic growth to pick up thanks to likely stimulus measures, which could support the iron ore consumption and pricing.
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