Mt Gibson Begins New Chapter At Koolan Is

Array
(
    [0] => Array
        (
            [0] => ((MGX))
        )

    [1] => Array
        (
            [0] => MGX
        )

)

This story features MGX RESOURCES LIMITED.
For more info SHARE ANALYSIS: MGX
The company is included in ALL-ORDS

Mount Gibson Iron is progressing with its re-development work at Koolan Island, with the project on track to achieve its first iron ore shipments in early 2019.

-Going forward lump is expected to make up the majority of DSO sales
-Brokers reduce estimates of FY18 net loss
-Market may not yet be prepared to pay for Koolan Island re-start
 

By Eva Brocklehurst

Mount Gibson Iron ((MGX)) has revealed lower shipments and realised prices for Iron Hill fines were offset by reduced costs and better prices for the lump product in the September quarter.

September quarter production of 821,000t and sales of 841,000t were supported by the ramping up at Iron Hill, and exceeded Macquarie's expectations, although shipments were -7% lower because of the mix of sales. Revenue for the quarter reflected less lump in the product mix and was 10% below the broker's forecasts.

UBS remains concerned about a widening in the low-grade price differential versus the Platts 62% index. The Platts 58% index attracts a -38% discount currently, although Mount Gibson Iron sells a slightly higher iron product and thus receives a slightly lower discount. Fines made up around 55% of September quarter direct shipping ore (DSO) sales but going forward it is anticipated that lump will make up 55%.

The December quarter is expected to provide the last of the low-grade lump sales from Extension Hill and UBS revises FY18 estimates slightly to reflect increased sales of ore at a lower value, and slightly more fines versus lump over the year.

Citi marks to market changes to iron ore and FX, resulting in net loss estimates for FY18 being reduced to -$5m from -$15m. FY18 net profit estimates are reduced to $12m from $18m. Macquarie also narrows its forecast loss for FY18 because of a reduction in cash cost assumptions at Iron Hill. Sales guidance of 3.5-3.8mt at all-in cash cost (AISC) of $47-52/wmt is maintained.

Koolan Island

The Koolan Island re-development, off the coast of Western Australia's Kimberley region, is progressing on time and on budget as the seawall reconstruction is underway, with $12m spent during the quarter. First ore shipments are targeted for early 2019.

Progress at Koolan Island presents the most material catalyst for the stock, in Macquarie's opinion. A decision to employ the company's significant cash balance on an acquisition may also be a catalyst in the medium term. The broker retains an Outperform rating, as the stock is trading below its cash backing.

Over the quarter the company received $64m in insurance proceeds – the seawall gave way at the mine three years ago and the operation was closed – and generated positive operating cash flows, slightly offset by expenditure.

UBS values Koolan Island at $101m or 9c per share and retains a Neutral rating, believing the market is not yet prepared to pay for the Koolan Island re-start. FNArena's database shows two Hold and one Buy (Macquarie) rating. The consensus target is $0.44, signalling 13.5% upside to the last share price. The dividend yield on FY18 and FY19 forecasts is 5.2%.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms