GRR 7.14% 52.0¢ grange resources limited.

petra coverage

  1. 186 Posts.
    We maintain our BUY recommendation following the
    release of the GRR June 2011 quarterly production
    report. Progress continues on the Southdown (70%)
    definitive-feasibility study, draft completion planned for
    the end of this year.
    Product pricing remains robust, with GRR reporting
    an achieved price of US$222/t in the quarter. While
    pellets shipped in the quarter (517,00t) was well above
    the March 2011 quarter (210,000t), near term high
    costs engendered by current mining saw direct
    production costs rise. High mining costs are likely to
    persist into the September quarter and taper thereafter.
    We value GRR at $1.11/share.
    June 2011 quarter still carrying higher costs
    ?h The Savage River mine pit wall collapse (June 2010)
    and the subsequent bringing forward of wall cut-back
    plans will continue to impact results until late this year.
    ?h This pit wall profile work and associated materials
    movement, coupled with truck fleet rebuild timing has
    meant higher cost product opex with direct cost of
    pellet production of $123.67/t compared with $62.01/t
    in the pcp and $98.63/t in the March 2011 quarter.
    ?h The June quarter was the first where product sales
    were delivered under a quarterly based price regime.
    Pellet price achieved was US$222/t and the pellet
    premium achieved in the range of $40-45/t. GRR is
    unhedged and we estimate quarterly product revenues
    of A$108M. We assume a robust price regime over the
    remainder of the year.
    June 2011 production outcomes
    ?h 502,000t concentrate produced (641,000t pcp).
    ?h 32.3% (DTR) weight recovery (46.2% pcp).
    ?h 521,000t pellets produced (639,000t pcp).
    ?h 517,000t pellets shipped (581,000t pcp).
    ?h Direct cost pellet production $123.67/t ($62.01/t pcp).
    Southdown progress
    ?h The prefeasibility study (PFS) for the Southdown
    project (70% GRR, 30% Sojitz) was released in May,
    outlining a 19-40 year project @ 10Mtpa concentrate.
    ?h Permitting and approvals are in place for all substantial
    elements of the Australian based part of the project (ie.
    to concentrate on ship).
    ?h The project has a Definitive Feasibility Study (DFS)
    underway with expected completion early 2012. The
    estimate for the DFS cost has been reduced to about
    $70M. At 30 June 2011 GRR had $144.4M of net cash
    on the balance sheet and the funding clearly in place
    for its share (about $50M) of the DFS.
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