Sandfire Resources (SFR) reported December Q production of 16.9kt Cu and 10.4koz Au at a US$0.85/lb C1 cost (down 6% on Cu and Au production and down 2% on cost QoQ). Production was impacted by a lower Cu head grade and lower recoveries. DeGrussa production is still tracking at the upper end of production guidance and below cost guidance for FY19. Group cash at 31 December was $179m (vs Argonaut forecast of $225), following a ~$72m payment for the Springfield acquisition from Talisman Mining (TLM) and equity investments in Sandfire Resources America (previously Tintina Resource) and Adriatic Metals (ASX:ADT). Post-quarter, the Company confirmed media speculation that it had approached MOD Resources (MOD, BUY, TP $0.83) regarding a potential combination of the two companies (See report: Sandfire confirms takeover approach to MOD). We see MOD’s large tenement holding in the Botswana Copper Belt as a good fit for SFR, however we believe the touted offer price of $0.38/sh will need to be raised in order to complete the acquisition. We downgrade SFR to a HOLD (from BUY) due to uncertainty around the potential MOD acquisition and as the stock is trading within ~5% of our revised $7.70 target price (previously $8.10).
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