Berenberg adjusts target for Petra despite Williamson failure

Berenberg started by pointing out Petra's first-half production of 2.1mct was "slightly ahead" of its 2mct estimates, with sales of 1.7mct in line with the analysts' forecasts. However, sales of $194m came in slightly below Berenberg's $202m estimates, due to mix.

"Encouragingly, Petra believes that it is on track to meet or even exceed its FY 2020E guidance of 3.8mct (we forecast 3.9mct), helped by throughput increases as part of Project 2022," noted Berenberg.

With net debt of $596m, broadly flat but slightly above Berenberg's estimates of $577m, the German bank expects Petra to deleverage in the second half.

While Berenberg acknowledged that a pit wall failure occurred at Petra's Williamson project in January, with 1.3mt of material falling into the pit, would likely lead to an increased capex throughout 2020 - as mining had now moved to the north-west area of the pit and guidance remaining unchanged following a strong start to the year, the analysts said that with cash relating to Williamson mostly staying in Tanzania, they do not expect "a major impact" to the group's cash management.

The analysts also pointed out that Petra saw increased market stability towards the end of the December quarter, and highlighted that management noted that demand "continued to improve" post-period end as the midstream replenished inventory.

Berenberg reiterated its 'hold' rating on Petra and nudged its price target on the group up to 10.0p from 9.0p in anticipation of higher prices in the third quarter of the miner's 2020 financial year and an improved long-term cost profile.

Offsetting those factors were the likely increased capital spending at Williamson and the broker's forecasts for a slower improvement in mix at Petra's Finsch.

Furthermore, the broker said that in order for the shares to erase their discount versus net asset value, there would need to be a "meaningful" improvement in the market and a quicker pace of deleveraging needed to be evident.