Following Mount Gibson’s quarterly production report yesterday, RBS Morgans has reinitiated coverage of the pure play iron ore miner with an outperform rating and target price of $1.20 per share, a 40 per cent premium to its last traded price.
"Despite short mine lives and a near-term decline in production, we view Mount Gibson’s current share price as offering excellent risk-reward exposure to iron ore. We believe investors are likely to benefit from ongoing dividends and, potentially, further capital management”, RBS Morgans said in a research report.
The broker believes the short mine lives are already priced in and expects the company production for fiscal 2013 to be broadly in line with the 8-8.5 million tonnes guidance. On top of that, with approximately $300 million in cash at December 2012, the company has indicated it will look at acquisition and capital management opportunities as part of its strategy to add shareholder value.
Mount Gibson’s recent acquisition of 250 square kilometres of exploration tenements just 60 kilometres from existing operations for an upfront fee of $500,000 is a low risk investment in RBS Morgans' eyes and an example of management’s ability to execute such deals.