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MZI Resources on track to achieve design production rates

Published 22-NOV-2016 16:11 P.M.


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Consistent with its ability to move quickly from decision to mine to production at the Keysbrook Mineral Sands project, MZI Resources (ASX: MZI) informed the market on Tuesday morning that commissioning of the Wet Concentrator Plant (WCP) Optimisation Project was in progress with commissioning already commenced.

This project is designed to improve recovery of heavy mineral concentrate and increase the final grade to achieve design criteria, potentially maximising the value realised for its high-quality mineral sands products.

Providing some insight into the company’s achievements to date, Chairman Rod Baxter said, “The project went from a final investment decision in November 2014 to first mining in October 2015, and just one month later we started shipping product to our offtake customers around the world”.

MZI continues to meet milestones

He highlighted the fact that the delivery of a greenfield project ahead of schedule and within budget was a significant achievement. This is particularly relevant in the mineral sands industry which has a record of delivering curveballs that blow out timelines and budgets.

While the last 12 months hasn’t been without its challenges, Baxter noted that healthy progress has been made and in particular the group has continued producing and selling high-quality mineral sands products throughout the period.

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There has been plenty for the number crunchers to get excited about in recent months with more than 41,000 tonnes of product shipped by September and a trebling in the ore reserve.

While the numbers are solid, there is no guarantee they will continue to rise in this manner. Investors considering this stock should take all information, including this news, into account before making an investment decision and seek professional financial advice.

From a corporate perspective, Baxter referred to recent leadership changes which will see the appointment of a new Managing Director who it is anticipated will effectively transition the company into a high profile mineral sands producer.

Improving global market dynamics

With regard to the group’s outlook, Baxter said MZI has a number of factors working in its favour, not the least being signs of renewed market optimism and positive demand for its products, particularly in the titanium sector where there has also been some depletion of pigment inventories.

He also noted that there has been consolidation in the industry over the last few years which has resulted in a contraction in supply. With a lack of investment in new projects there is little room to move on the supply side of the equation.

Consequently, if demand increases commodity prices are bound to increase as any new supply is some years off given the usual industry lead times.

Keysbrook is a quality long life resource

The other point Baxter made related to the quality of the orebody at Keysbrook. In this respect the group holds ore reserves equivalent to more than 15 years of production at designed output rates and total mineral resources equivalent to over 30 years of production.

With a US$16 million debt funding package in place, Baxter sees the company as adequately funded to complete planned improvements. It is also worth noting that MZI delivered positive operating cash flow in the September quarter, hopefully a sign that the company can strengthen its balance sheet in 2017 and beyond.

Consensus forecasts suggest share price retracement is a buying opportunity

MZI’s share price has retraced from a high of 38 cents in mid-October to recently hit a low of 28 cents as global volatility briefly stunned markets in mid-November. However, it has edged back to trade as high as 31.5 cents on Tuesday morning, and this could be the start of a material rerating given the group is trading at a significant discount to the 12 month price target of 56 cents.

Consensus forecasts for fiscal 2017 suggest MZI will record earnings per share of 6.7 cents, implying a PE multiple of less than five relative to its current trading range. Given growth of circa 40% is forecast in fiscal 2018 the company appears conservatively valued.

Potential investors should note that operational projections, share price targets and earnings forecasts may not be achieved and as such should not form the basis of an investment decision. If considering MZI Resources, independent financial advice should be sought.

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S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

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