At time of writing, Sandfire Resources NL [ASX:SFR] are trading at a respectable $7.70, an 8.1% climb since market closing yesterday.
Earlier this morning, the FY18 Annual Results were released on the ASX, marking a record net profit of $123 million for the company.
The mid-tier mining company is one of the leading copper producers in Australia. They 100% own the high-grade copper-gold mine, Degrussa.
The company’s results reveal that the perfect combination of strong production, low costs and high copper price has led to this 59% net profit increase.
Sandfire’s 2018 Highlights
Such a positive result from the company no doubt trickles into all other aspects of their financial status.
FY18 ended with a strong cash flow for Sandfire, sitting at $245.0 million after payment of further exploration and evaluation expenses.
Earnings per share rose to 77.85 cents, a significant increase from FY17’s figure of 49.16 cents per share. FY18 dividends sit at 27 cents per share, fully franked. Again, another improvement from FY17, which gave 18 cents per share fully franked.
Group cash for Sandfire has increased by $126.7 million since 30 June 2017, and now sits at $243.4 million. And this is after making dividend payments, income tax payments and internally funding their 70% share of the new Monty Copper-Gold Mine development — expenses which equated in total to around $100 million.
Sandfire’s managing director, Mr Karl Simich, reiterates in the report the circumstances leading to these mega gains:
‘The combination of strong production, lower operating costs and a significantly improved copper price translated into impressive results at every level of our business.’
So just how has this copper-mining boom erupted?
Copper Price Highs
It all boils down to China’s clean-up act.
With a push towards more environmentally friendly infrastructure, and a desire to switch from a consumer-led to investor-led economy, high-grade and high-performing resources are a must for Chinese industrial services.
And the ongoing trade tension between China and the US made Australia the go-to for copper supply in the past year. China has been stocking up on their trade-supplied resources — including iron ore and coking coal — before new laws prohibit such excess amounts of these metals to be kept in storage.
However, China’s insistence on reducing their steel and other infrastructure production means their demand on mined commodities is bound to decrease. Their move to an investment-led economy suggests our property market will be of greater appeal to the Chinese than our mining industry over the next few years.
What this could mean for Sandfire in the years to come
Despite the rocky outlook for our biggest consumer of resources, Sandfire remain confident in their DeGrussa Mine.
‘Looking ahead, the continued strength and low cost of the DeGrussa operation…once again puts us in a very strong position moving forward.
‘…We remain very positive on the broader outlook for copper given the metal’s supply and demand fundamentals… We believe the metal will also receive strong support from a generally stronger outlook for the global economy, major new infrastructure initiatives across Asia and the rapid rise of new sources of demand from the electric vehicle and energy storage sectors.’
Only time will determine whether this perfect combination continues, or if it will shift into the makings of a perfect storm.
For Money Morning