RE: Peel Hunt Note 02nd Nov 2020 Key points3 Nov 2020 12:53
Beyond 2021, CEY may aim for closer to the 500k oz mark at Sukari
While the recovery to a normalised run rate may not happen until the end of next
year on our forecasts, our normalised rates could well be lower than what CEY
has aimed for in recent years. Historically CEY was looking to produce +550k oz
at Sukari each year, while more recently that has been focused closer to the 500-
550k oz level.
However, going forward, we believe it’s possible we will see Sukari run as more
of a sustainable operation with a longer mine life at a lower annualised rate of
closer to 500k oz. For this reason we have forecast just 482k oz of production in
2022, down 11-12% from our previous forecast of 543k oz. The LOM asset
review on 2 December is likely to give more firm detail on what that mediumterm production profile could look like.
2021 and 2022 profit forecasts lowered by 25-30%
While we make only modest single-digit percentage changes to our 2020 profit
forecasts, our 2021 and 2022 EBITDA forecasts have been revised down 27-
29%, as set out in Table 1 below. Our EPS forecasts for both years have been
lowered by 31%. Our 2020-22 EBITDA forecasts are in line to just below
current consensus.
Cash buffer still intact, dividend unchanged
At the announcement of the instability in the Sukari open pit, we stated that we
saw the downside liquidity case resulting in close to US$250m of net cash in Q3
2021. That belief remains intact.
Our new forecasts do not account for any change in dividend forecasts. With a
final 2020 dividend forecast at USc6, and the total 2021 dividend forecast at
USc12 (both unchanged) we currently forecast that our cash low points to an
average of between US$240 and US$260m in 2021, with the absolute low point
of US$238m in Q3 2021 after payment of the 2021 interim dividend.
Target price lowered by 22% to 170p, upgrade to Buy
We continue to use a weighted average valuation using near-term EV/EBITDA
and a longer term NAV based valuation. As Table 2 below sets out, this gives us a
fair value range from 150p at the low end to 194p on the high end. Therefore, we
have lowered our target price by 22% to 170p (from 218p).
However, with 35% potential upside to our revised target, we upgrade to a Buy
rating. With greater certainty over the 12-month outlook we now feel higher
conviction on the upgrade than previously. We also believe that by mid-2021 the
12-month forward outlook will be more positive than it is now, allowing for
further upside to our share price valuation. As we forecast three quarters of
excessively low production rates in a row, it is not too long before we hope these
are behind us. We would also note potential upside should CEY come up with
further cost-saving initiatives during the coming 12-month period.
Ends
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