五矿资源(1208.HK)： lower volume and higher cost，Rating Buy，PT of HK$ 6.4

机构：德意志银行

评级：买入

目标价：6.4港元

Las Bambas guidance change on localized wall instability, lower volume and higher C1 in 2018 

MMG announced earlier today that it is revising its Las Bambas 2018 output guidance to 375kt-395kt from the previous range of 410kt-430kt, and C1 guidance to $1.1-1.2/lb from $1.0-1.1/lb. This is mainly due to a localized wall instability, which restricted access to mining of high-grade ores in sections of the Ferrobamba pit, which the company had expected to access in the second half of the year. Whether the actual output will be close to the lower or the higher end of the new guidance depends on when complete access to the area in question can be regained. According to the company, the instability is in the same pit wall as the one that led to lower output in 1Q18, but the technical issue is different.

Potential impact on 2018 bottom line 

We expect this issue to negatively affect MMG's bottom line, as Las Bambas contributes a large portion of the company's earnings (72% of EBITDA in 1H18). At the current copper price of c.$2.7/lb and previous C1 of c.$1.1/lb, production loss of 35kt on average could lead to $25m+ lower NPAT; and $0.1/lb higher cost on annual average production of 385kt will lead to another $30m+ lower NPAT.

Outlook from the company: Medium-term guidance maintained 

Company management has maintained its medium-term production guidance of 2mt+ over the first five years of operation, and expects the impact to affect 2018 only. MMG is operating at annualized throughput levels that are above the designed capacity of 50.7mtpa. The company is also advancing a series of work programs to extend Las Bambas' production profile in the longer term, including optimizing feed-size distribution, introducing further secondary crushing, and so on, to improve the feed stockpile. MMG is scheduled to provide a more detailed update on the instability in its 3Q18 production report in October, and production guidance of 2019 will be released in January 2019, together with its 4Q18 production report.