African Minerals Ltd (Price: 184p | Target: 246p | Rec: Buy) In its 4Q13 production report today, African Minerals announced Q4 sales of 3.8mt taking FY13A sales to 12.1mt, in the mid-range of guidance of 11-13mt (Investec 12.1mt).

The company is confident of achieving a 20mtpa rate in 2014, suggesting that sales of 20mtpa are unlikely (it will provide FY14E guidance at end of March).

The PhII expansion plan is expected to commence at the end of 2014, following the current pilot plant test work, while the Tewoo transaction makes steady progress. * African Minerals had previously indicated that it would achieve 20mt in 2014.

Given that it is not yet running at this rate, we retain our more conservative estimate of 18mt for FY14E, although even this may need to be reviewed.

That said, the operational issues that hampered production (conveyor belt replacement) have been rectified while the record nine shipments in December was encouraging (out of twenty two in the 4Q13). * The Tewoo transaction is proceeding according to plan with two test shipments delivered, tested and accepted.

AMI announced that it expects to start the PhII expansion later this year, adding an extra “up to 10mtpa” of capacity.

However, it still remains short on details over exactly what this will entail.

The pilot plant is now operational and AMI expects to establish flow-sheet parameters during the 1H14.

While the company expects to meet all capex requirements for this through existing restricted cash and new debt, the completion of the Tewoo transaction would, in our view, provide a welcome financing buffer. * The Shandong off-take agreement has been altered to reflect a phased ramp up, with Shandong’s share increasing to 7mtpa at a 25mtpa rate, increasing pro-rata to 10mtpa at a 35mtpa rate. * Our target price for African Minerals is based on a risked NPV, assuming a maximum production rate for Tonkolili of 24mtpa.

At end of 4Q AMI had debt of $830m and cash of $362m.

Maintain Buy.
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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