Canaccord moves Base Resources to 'speculative buy'

Base Resources' quarterly production results saw mining rates come in "significantly ahead" of Canaccord's prior assumptions of 3.5m tonnes, at 4.1m tonnes.

However, heavy metals recovery from ore to concentrate was lower than its prior assumption, which led to heavy mineral concentrate production being in line with estimates at roughly 85,000 tonnes.

Canaccord, which also cut its target price on the stock from 40.0p to 35.0p, noted that the company has switched from continuous processing to campaign processing in order to maximise recoveries, which has led to "extended plant shutdowns" and MSP feed which has lagged production at roughly 72,000 tonnes.

"The result is that production of all products lagged our expectations: ilmenite ~38 kt (CGe: ~43 kt), rutile ~10 kt (CGe: ~11 kt), zircon 3.8 kt (CGe: 4.3 kt). Finally, the company continues to export its product in bulk shipments and therefore the stockpile build will take longer. Hence, sales lagged production significantly during the quarter (~70% for ilmenite, ~40% for rutile)," said the Canadian bank.

"The nature of today's announcement highlights that results are likely to swing more rapidly from quarter to quarter than we have seen in the past. We note that from a balance sheet perspective, the company remains in a strong position, reporting US$77m in this update, and having previously shown ~US$45m in net receivables as of 30 June. The sales lag also means that there is likely a ~US$15-20m inventory build that will be unwound over the coming months."

Reporting by Iain Gilbert at Sharecast.com