African Minerals (LON:AMI) will be capable of robust cash generation and earnings, says Investec analyst Hunter Hillcoat, however he is considerably more cautious than the company’s own ambitious sales targets.
In a note to clients today the Investec analyst highlighted that the phase one construction programme at AMI’s Tonkolili iron ore mine development project, in Sierra Leone, is moving closer to conclusion.
He believes that the project will be connected to a rail line imminently. After that the company expects to start shipping ore.
Investec have a ‘buy’ recommendation on African Minerals shares with a 767p price target. This punchy valuation implies around 90 per cent ‘upside’ to the current price of 406p.
However, the investment bank’s analyst team are nearly as bullish as African Minerals itself.
“AMI has aggressive sales targets in place and while we remain considerably more cautious, we can still gain an appreciation of the robust cash generation and earnings of which this company is capable,” Hillcoat said.
“Notwithstanding our production volumes and pricing assumptions being more conservative than AMI's, it is still a compelling cash flow generator.”
The analyst added: “Over the period starting late 2011 to the end of 2014, we expect the Tonkolili project to generate EBITDA of almost US$2.3 billion.
“Under AMI’s targeted production volumes, the EBITDA generation would be 39 per cent higher, at US$3.1 billion."