🕐16.10.13 - 18:27 Uhr

INVESTEC: LONDON MINING : NEAR TERM PRICE INCREASES PROMPT SHARP LIFT IN EARNINGS - BUY




London Mining (Price: 126p | Target: 141p | Rec: Buy) Following our quarterly review of commodity price assumptions, we have lifted London Mining’s forecast received prices for FY13E and FY14E by $5-6/t.

This has resulted in a disproportionate 128% and 21% increase in our forecast earnings per share for FY13E and FY14E respectively, albeit coming off a low base.

While FY13E is a ramp-up and development year, London Mining is trading at attractive forward PE multiples: 6.4x FY14E and to 3.4x FY15E.

We upgrade to Buy on the back of an increased valuation. * We recently reviewed our iron ore price outlook, lifting our assumed 62% Fe fines (CFR China) prices for CY13E and CY14E by $3-4/t, to US$133/t and $123/t respectively.

At the same time, we have reduced our expected near-term freight charges for the Marampa product by $2-3/t. * The impact of the aforementioned changes is a $5-6/t increase in London Mining’s received price for FY13E and FY14E.

We now assume received prices (wet: 7% moisture, FOB Freetown) of $89.0/t and $87.1/t in FY13E and FY14E respectively, which compare favourably with the $96/t (dry) price reported in the 1H13A.

On the back of assumed sales (wet) of 4.0mt and 5.0mt in FY13E and FY14E respectively, this translates in forecast earnings per share (EPS) of 18.9cps (was 8.3cps) and 31.0c (was 25.7cps) respectively.

These changes, on the back of modest iron ore price increases, demonstrate the price leverage that London Mining offers.

Our current FY15E EPS of 58.2cps is up 2% on our previous forecast. * The changes to earnings result in an increase in our risked, NPV-based, Price Target from 130p to 141p.

We risk Marampa to 85% of our valuation to reflect the remaining delivery risk.

Looking ahead, at our TP, LOND would still be trading at less than 5x FY15E earnings, albeit that this is a peak earnings year under our (and consensus) commodity price assumptions.
To access the full note please click here Analyst: Hunter Hillcoat
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