GREY:MRBAF - Post by User
Post by
wise_investoron May 20, 2011 2:12am
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Post# 18604941
RBC raises target to $2.80A from $2.30
RBC raises target to $2.80A from $2.30Finally RBC sees the light!
RATINGS REVISION | COMMENT
MAY 19, 2011
Mirabela Nickel Limited (ASX: MBN; TSX: MNB)
The Time Has Come; Upgrade to Outperform & A$2.80
target
Outperform (prev: Sector Perform)
Above Average Risk
Price: 2.10
Shares O/S (MM): 491.6
Dividend: 0.00
NAVPS: 2.77
BVPS: 1.26
ROE: (8.0)%
Float (MM): 461.5
Debt to Cap: 41%
Price Target: 2.80 2.30
Implied All-In Return: 33%
Market Cap (MM): 1,032
Yield: 0.0%
P/NAVPS: 0.8x
P/BVPS: 1.7x
Enterprise Val. (MM): 1,637
Avg. Daily Volume (MM): 2.25Priced on the ASX at 3pm on 19 May 2011
Event
Upgrade to OP, Target to A$2.80 (A$2.30) as diminishing risk skews returns
potential to the upside.
Investment Opinion
Our judgment is that it is time to build a holding in MBN. The company has
significantly de-risked the large low grade Santa Rita nickel project in Brazil.
Finances have stabilised after the recent capital raising and debt refinancing and
we believe that operational issues such as waste removal and low recoveries from
persistent chloritic material are being overcome. Even though the ramp up
continues well into next year, in our opinion, share price risk is skewed to the
upside, and from a risk-reward perspective we are comfortable raising our target
and thus our rating ahead of confirmation of success at Santa Rita.
• Why Buy? MBN is trading at 0.76x P/NAV, an implied return of 33% to ourtarget. It could become the "go to" nickel name when at its targeted 25ktpa next
year. Lastly, operational issues are well understood and manageable, in our
view. MBN has strategic value due to size, long life and scarcity and an open
register leaves it vulnerable to corporate activity.
• March Q: A headline loss of US$11m was not as severe as we forecastfollowing capitalisation of pre-stripping in excess of life-of-mine 5 to 1
average. A US$22m shipment to Norilsk was delayed till 5 April and the SAG
mill failure in Jan impacted Q1 by US$8m. We forecast that sales will exceed
production in Q2. Cash burn over the Q was US$48m but cash on hand of
US$56m has been boosted to ~US$200m by refinancing.
• Earnings: CY11 earnings rise 11% to US$19m and we raise our NAV asimilar 11% to A$2.77/share.
• Leverage: RBC estimates assume US$9/lb for CY12-14 resulting in "belowstreet" forecasts. Despite residual hedging moderating cash flow, leverage is
very strong. For example, CY12 earnings rise more than four-fold at spot nickel
of ~US$11/lb. Hedging is 42% of CY11, 24% of CY12 & 17% of CY13 sales
on RBC forecasts.
• Valuation: We raise our rating to Outperform (SP) and raise our price target toA$2.80 (A$2.30) based on an unchanged P/NAV of 0.9-1.0x. These multiples
remain below comparable nickel peers due to Mirabela's somewhat higher risk
during ramp-up.
Risk Reward Skewed to the Upside - Upgrade to Outperform
We believe it is time for investors to accumulate holdings in Mirabela