Sheffield prepares for Thunderbird’s are go
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Shares in emerging mineral sands producer, Sheffield Resources Ltd (ASX:SFX) have taken a battering since mid-October falling from approximately $1.20 to recently hit a 12 month low of 55 cents.
Given that the 12 month consensus share price target currently sits at $1.25, one has to start running the ruler across the stock to see if there is a mismatch between its recent trading range and fair value.
One factor that looms large for the company is funding for its world class Thunderbird Mineral Sands Project in Western Australia where Sheffield is targeting maiden production in the fourth quarter of 2020.
Sheffield recently appointed UBS AG, a leading global investment bank, to act as corporate adviser.
UBS will assist the company in considering third party strategic partner interest for the funding and development of the Thunderbird Project.
It is likely to involve a structured, formal process to evaluate and progress the introduction of a strategic party that would assist the company in achieving Thunderbird’s development objectives.
The fact that Thunderbird is a long life project works in its favour in terms of arriving at a flexible debt funded arrangement, but it is yet to be seen how that plays out.
Possible decision in eight weeks
While it is impossible to accurately predict the timing of a funding statement, Blue Ocean Equities’ analyst Stuart McIntyre is of the view that it will occur in the next 6 to 8 weeks.
Noting that the Sheffield’s share price implies a discount of more than 20% relative to the net present value of the development ready Tier 1 Thunderbird project, the broker sees significant, albeit speculative, upside.
This is also reflected in McIntyre’s share price target of $1.70.
Thunderbird is one of the largest and highest-grade mineral sands discoveries in the last 30 years.
Sheffield’s Bankable Feasibility Study shows Thunderbird is a technically low risk, modest capex project that is positioned to generate strong cash margins from robust levels of production over a mine life of 42 years.
Thunderbird will generate a high-quality suite of mineral sands products with specifications suited to market requirements.
These products include premium zircon suitable for the ceramic sector and LTR Ilmenite which will be one of the highest-grade sulfate feedstocks available globally.
Why the sell-off?
Analysts appear to be putting the sharp plunge in the company’s shares down to profit-taking, which could have some merit given that it coincided with negative sentiment towards equities markets.
It is also worth noting that the company’s shares have roughly doubled in the last 12 months, making the realisation of capital gains all the more enticing.
It is difficult to see Sheffield’s share price fall lower given its sharp discount to the project’s valuation, and on balance there appears to be a greater likelihood of a significant upturn.
Obtaining finance is an important phase in derisking a project and in the majority of cases the share prices of companies developing projects undergo a positive rerating when funding is finalised.
This suggests it may be time to capitalise on the group’s depressed share price.
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This material has been prepared by Jason Price. Jason Price is an authorised representative (AR 000296877) of 62 Consulting Pty Limited (ABN 88 664 809 303) (AFSL 548573) (62C), and a Director of S3 Consortium Pty Ltd (trading as StocksDigital).
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